[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
                  AN EXAMINATION OF H.R. 3890, A BILL
                   TO REAUTHORIZE THE METALS PROGRAM
                      AT THE DEPARTMENT OF ENERGY

=======================================================================

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON ENERGY

                          COMMITTEE ON SCIENCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 20, 2004

                               __________

                           Serial No. 108-61

                               __________

            Printed for the use of the Committee on Science


     Available via the World Wide Web: http://www.house.gov/science

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
                           WASHINGTON : 2004

93-759PS

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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              NICK LAMPSON, Texas
NICK SMITH, Michigan                 JOHN B. LARSON, Connecticut
ROSCOE G. BARTLETT, Maryland         MARK UDALL, Colorado
VERNON J. EHLERS, Michigan           DAVID WU, Oregon
GIL GUTKNECHT, Minnesota             MICHAEL M. HONDA, California
GEORGE R. NETHERCUTT, JR.,           BRAD MILLER, North Carolina
    Washington                       LINCOLN DAVIS, Tennessee
FRANK D. LUCAS, Oklahoma             SHEILA JACKSON LEE, Texas
JUDY BIGGERT, Illinois               ZOE LOFGREN, California
WAYNE T. GILCHREST, Maryland         BRAD SHERMAN, California
W. TODD AKIN, Missouri               BRIAN BAIRD, Washington
TIMOTHY V. JOHNSON, Illinois         DENNIS MOORE, Kansas
MELISSA A. HART, Pennsylvania        ANTHONY D. WEINER, New York
J. RANDY FORBES, Virginia            JIM MATHESON, Utah
PHIL GINGREY, Georgia                DENNIS A. CARDOZA, California
ROB BISHOP, Utah                     VACANCY
MICHAEL C. BURGESS, Texas            VACANCY
JO BONNER, Alabama                   VACANCY
TOM FEENEY, Florida
RANDY NEUGEBAUER, Texas
VACANCY
                                 ------                                

                         Subcommittee on Energy

                     JUDY BIGGERT, Illinois, Chair
RALPH M. HALL, Texas                 JOHN B. LARSON, Connecticut
CURT WELDON, Pennsylvania            NICK LAMPSON, Texas
ROSCOE G. BARTLETT, Maryland         JERRY F. COSTELLO, Illinois
VERNON J. EHLERS, Michigan           LYNN C. WOOLSEY, California
GEORGE R. NETHERCUTT, JR.,           DAVID WU, Oregon
    Washington                       MICHAEL M. HONDA, California
W. TODD AKIN, Missouri               BRAD MILLER, North Carolina
MELISSA A. HART, Pennsylvania        LINCOLN DAVIS, Tennessee
PHIL GINGREY, Georgia                BART GORDON, Tennessee
JO BONNER, Alabama
SHERWOOD L. BOEHLERT, New York

               KEVIN CARROLL Subcommittee Staff Director
         TINA M. KAARSBERG Republican Professional Staff Member
           CHARLES COOKE Democratic Professional Staff Member
                    JENNIFER BARKER Staff Assistant
                   KATHRYN CLAY Chairwoman's Designee



                            C O N T E N T S

                              May 20, 2004

                                                                   Page
Witness List.....................................................     2

Hearing Charter..................................................     3

                           Opening Statements

Statement by Representative Judy Biggert, Chairman, Subcommittee 
  on Energy, Committee on Science, U.S. House of Representatives.    11
    Written Statement............................................    11

Statement by Representative John B. Larson, Ranking Minority 
  Member, Subcommittee on Energy, Committee on Science, U.S. 
  House of Representatives.......................................    12
    Written Statement............................................    13

Statement by Representative Melissa A. Hart, Member, Subcommittee 
  on Energy, Committee on Science, U.S. House of Representatives.    14
    Written Statement............................................    15

Prepared Statement by Representative Jerry F. Costello, Member, 
  Subcommittee on Energy, Committee on Science, U.S. House of 
  Representatives................................................    15

                               Witnesses:

Mr. Douglas L. Faulkner, Principal Deputy Assistant Secretary for 
  Energy Efficiency and Renewable Energy, United States 
  Department of Energy
    Oral Statement...............................................    16
    Written Statement............................................    18
    Biography....................................................    20

Mr. Richard A. Shulkosky, Vice President for Sales, Marketing, 
  and Product Development, INTEG Process Group
    Oral Statement...............................................    21
    Written Statement............................................    22
    Biography....................................................    23

Ms. Lisa A. Roudabush, General Manager of Research, U.S. Steel 
  Corporation
    Oral Statement...............................................    24
    Written Statement............................................    25
    Biography....................................................    27

Dr. Ronald J. Sutherland, Consulting Economist and Adjunct 
  Professor of Law, George Mason University School of Law
    Oral Statement...............................................    27
    Written Statement............................................    29
    Biography....................................................    32

Discussion.......................................................    32


 AN EXAMINATION OF H.R. 3890, A BILL TO REAUTHORIZE THE METALS PROGRAM 
                      AT THE DEPARTMENT OF ENERGY

                              ----------                              


                         THURSDAY, MAY 20, 2004

                  House of Representatives,
                            Subcommittee on Energy,
                                      Committee on Science,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 10:05 a.m., in 
Room 2318 of the Rayburn House Office Building, Hon. Judy 
Biggert [Chairwoman of the Subcommittee] presiding.


                            hearing charter

                         SUBCOMMITTEE ON ENERGY

                          COMMITTEE ON SCIENCE

                     U.S. HOUSE OF REPRESENTATIVES

                  An Examination of H.R. 3890, A Bill

                   to Reauthorize the Metals Program

                      at the Department of Energy

                         thursday, may 20, 2004
                         10:00 a.m.-12:00 p.m.
                   2318 rayburn house office building

1. Purpose

    On Thursday May 20, 2004, the Subcommittee on Energy of the U.S. 
House of Representatives' Committee on Science will hold a hearing to 
examine H.R. 3890, a bill to reauthorize energy efficiency research and 
development (R&D) at the Department of Energy (DOE) to support the 
domestic metals industry.

2. Witnesses

Mr. Douglas L. Faulkner is the Principal Deputy Assistant Secretary for 
Energy Efficiency and Renewable Energy at the U.S. Department of 
Energy.

Mr. Richard A. Shulkosky is Vice President for sales, marketing and 
product development at the INTEG Process Group, a small company that 
supplies industrial process control systems and electronics.

Ms. Lisa A. Roudabush is the General Manager of Research for the United 
States Steel Corporation, where she oversees the company's Research and 
Technology Center in Monroeville, Pennsylvania.

Dr. Ronald Sutherland is a Consulting Economist and Adjunct Professor 
of Law at the George Mason University School of Law. His experience 
includes 17 years as an economist at two DOE national laboratories, and 
two years as a senior economist at the American Petroleum Institute.

3. Overarching Questions

    The hearing will address the following overarching questions:

        1.  What is the current status of the Federal Government's 
        efforts in energy efficiency R&D for the metals industry? How 
        would H.R. 3890 change the current program? How could H.R. 3890 
        be improved?

        2.  What are the benefits of the program, and who are the 
        recipients? How are these benefits measured? What are the costs 
        of the program?

        3.  What are the primary barriers to increased development and 
        adoption of more energy efficient products and processes in 
        industry, and how can these barriers be removed?

4. Overview

    The DOE R&D program to help the domestic metals industry improve 
its energy efficiency was first authorized by the Steel and Aluminum 
Energy Conservation and Technology Competitiveness Act of 1988 and 
reauthorized in the Energy Policy Act of 1992. Authorization of 
appropriations expired in 1997, although Congress has appropriated 
funds each year since then.\1\ H.R. 3890 would authorize appropriations 
for metals-related energy efficiency R&D programs for fiscal years 2005 
through 2009 and make other minor modifications to the current law. The 
hearing will address the implications of reauthorization; past and 
potential future benefits and costs of the program; and policy 
alternatives that might also help achieve the public benefits 
associated with improved energy efficiency in the metals industry 
(e.g., energy security, reduced emissions of pollutants and greenhouse 
gases).
---------------------------------------------------------------------------
    \1\ Under DOE's broad authority to conduct energy efficiency R&D, 
Congress had appropriated funds for such activities even before the 
establishment of program in 1988.
---------------------------------------------------------------------------

5. Summary of H.R. 3890

    The bill amends the Steel and Aluminum Energy Conservation and 
Technology Competitiveness Act of 1988. Primarily, the bill authorizes 
appropriations of $10 million each year for fiscal years 2005 through 
2009 for the Department of Energy. The bill also includes provisions 
to:

          Include the potential for technologies to reduce 
        greenhouse gas emissions as a consideration in research 
        planning;

          Repeal a section related to programs at the National 
        Institute of Standards and Technology (NIST) that have been 
        inactive; and

          Re-establish a requirement for an annual report to 
        the President and the Congress on R&D activities carried out 
        under the program.

6. Background

What did the underlying legislation do?
    The underlying act, the Steel and Aluminum Energy Conservation and 
Technology Competitiveness Act of 1988, (the Act) authorized a program 
to ``increase the energy efficiency and enhance the competitiveness of 
American steel, aluminum, and copper industries'' through research and 
development activities at DOE. While a program already existed at DOE, 
the Act required an updated research plan, set the minimum cost share 
from industry at 30 percent, identified specific priorities for 
consideration in project selection, required regular reports to 
Congress, and outlined intellectual property rights for discoveries of 
the research. The Act also mandated participation by industry and labor 
in the development of the management plans. The Act also called on NIST 
to provide instrumentation and measurement R&D support to the programs.
What programmatic changes does H.R. 3890 include?
    In addition to authorizing $10 million per year for fiscal year 
2005 through fiscal year 2009 to carry out the program, H.R. 3890 
proposes to:

          Authorize research to target greenhouse gas 
        reductions. As large energy consumers the metals industries 
        make a significant contribution to total emission of greenhouse 
        gasses, including carbon dioxide. This provision, included at 
        the request of the metals industry, would explicitly allow 
        research projects that concentrate on reducing these emissions;

          Repeal the sections of the Act that refer to NIST. 
        The NIST portion of the program has not been active for many 
        years. While NIST's general authorities would allow work to 
        continue on competitiveness for the metals industry, the bill's 
        sponsors believe that it is most important to focus the program 
        at the Department of Energy;

          Require an annual report to Congress. The report must 
        include a summary of the research and development activities, 
        including budget information, together with any recommendations 
        from the Secretary on other actions that could assist the 
        industry. The report must also contain an analysis of the 
        extent to which projects succeeded in accomplishing the 
        purposes of the Act.

How does the existing program work?
    The program is closely coordinated with industry through 
participation in research planning and cost-sharing. This involvement 
serves as a ``market test'' of whether industry perceives the 
activities as important enough to contribute their time and money. In 
general, the program solicits proposals, which are concurrently 
reviewed by the industry's trade organization and DOE to ensure that 
the projects meet the criteria and objectives of both. The resulting 
list of qualified proposals is then distributed to the trade group's 
member companies, which determine priority projects by identifying 
projects for which they are willing to cost share. Project awards are 
made, and the research is generally conducted at universities and 
national laboratories, although some research may also be carried out 
on-site at participating companies' facilities. To ensure that the 
benefits are realized domestically, the Act limits company 
participation to those companies ``substantially involved in the United 
States domestic production, processing, or use'' of steel, aluminum or 
copper.
What are the funding levels for the program?
    In 2004, Congress appropriated $6.7 million for the steel program 
and $6.6 million for the aluminum program. The 2005 Budget includes 
$3.8 million and $2.7 million for these programs, respectively. 
Historic funding levels are provided in Appendix III.
What methods are used to calculate the past and expected future 
        benefits of the program as reauthorized in H.R. 3890?
    Benefits of R&D programs are notoriously difficult to quantify. 
Moreover, federally-funded applied R&D programs frequently supplement 
private sector investments, making it difficult to attribute benefits 
of technology developments to either the Federal Government or the 
private sector. Proponents of the program say that federal funding 
helps push private research investments to pursue public goals, such as 
emission reduction, job creation, and energy efficiency that might be 
less of a consideration in a more traditional business investment. The 
industry claims that in addition to savings to the industry, improved 
products mean additional benefits to the public. For example, the 
industry says that improved metal casting as a result of this research 
has allowed the automobile industry to reduce weight without 
sacrificing strength, resulting in a savings of two billion gallons of 
gasoline in 2001. This is equal to about 50 million barrels, or over 
two days of total domestic oil consumption. It is difficult to know how 
much of these benefits would have been realized without an incentive 
program. Clearly, the methods used to estimate public benefits, and to 
identify how much of those benefits are attributable to the federal 
investment, are important to deciding if the program is a sound 
investment of taxpayer dollars.

7. Questions for the Witnesses

    The witnesses were asked to address the following questions in 
their testimony:
Questions for Mr. Faulkner

        1.  What is the Administration's view on H.R. 3890, a bill to 
        reauthorize the Steel and Aluminum Competitiveness Act of 1988? 
        What recommendations would the Administration make, if any, to 
        improve it?

        2.  What has been the total taxpayer cost to date for DOE's R&D 
        program to improve energy efficiency in the steel and aluminum 
        industries? What public benefits has the program produced to 
        date? What are the expected future benefits of further taxpayer 
        investment? Please summarize the methods DOE uses to calculate 
        benefits, both retrospectively and prospectively.

Questions for Mr. Shulkosky

        1.  Please briefly describe your company's experience with the 
        energy efficiency programs funded by the Department of Energy 
        (DOE). How has federal funding affected decision-making at your 
        company?

        2.  What products and processes have been designed or improved 
        as a result of the program? To what extent has private industry 
        adopted these products and processes? How has the public 
        benefited from this work? How can the program be improved?

        3.  How competitive is the U.S. aluminum and steel industry on 
        an international basis? Has the work conducted in the DOE 
        metals program contributed to a more robust U.S. metals 
        industry?

        4.  Should the Federal Government continue to support R&D to 
        improve energy efficiency of the steel and aluminum industries? 
        To what extent are other countries supporting their steel and 
        aluminum industries? What percent of steel and aluminum comes 
        from multinational corporations?

        5.  Please comment on H.R. 3890, the legislation being 
        considered in this hearing.

Questions for Ms. Roudabush

        1.  Please briefly describe your company's experience with the 
        energy efficiency programs funded by the Department of Energy 
        (DOE). How has federal funding affected decision-making at your 
        company?

        2.  What products and processes have been designed or improved 
        as a result of the program? To what extent has private industry 
        adopted these products and processes? How has the public 
        benefited from this work? How can the program be improved?

        3.  How competitive is the U.S. aluminum and steel industry on 
        an international basis? Has the work conducted in the DOE 
        metals program contributed to a more robust U.S. metals 
        industry?

        4.  Should the Federal Government continue to support R&D to 
        improve energy efficiency of the steel and aluminum industries? 
        To what extent are other countries supporting their steel and 
        aluminum industries through R&D funding? What percent of steel 
        and aluminum comes from multinational corporations?

        5.  Please comment on H.R. 3890, the legislation being 
        considered in this hearing.

Questions for Dr. Sutherland

        1.  Should the Federal Government continue to support R&D to 
        improve energy efficiency of the steel and aluminum industries? 
        To what extent are other countries supporting their steel and 
        aluminum industries through R&D funding? What percent of steel 
        and aluminum comes from multinational corporations?

        2.  Please comment on H.R. 3890, the legislation being 
        considered in this hearing.

        3.  What are the primary barriers to increased development and 
        adoption of more energy efficient products and processes, and 
        how can these barriers be removed?

APPENDIX I

  Section-by-Section Summary of H.R. 3890, a Bill to Reauthorize the 
 Steel and Aluminum Energy Conservation and Technology Competitiveness 
                              Act of 1988
    Authorizes appropriations of $10 million for each of the fiscal 
years 2005 through 2009, amends one of the list of priorities to delete 
``coatings for sheet steels'' and substitute ``sheet and bar steels,'' 
adds a new priority that authorizes research on technologies that 
reduce greenhouse gas emissions, strikes the section referring to 
activities at NIST, and inserts language requiring a report to 
Congress.

APPENDIX II






    Chairwoman Biggert. The Energy Subcommittee of the Science 
Committee will be in order. I apologize for starting a few 
minutes late. We had an unexpected visit from the President 
this morning, so--in our conference, and it is very difficult 
to get up and leave, so I apologize.
    Good morning, and thank you for coming to this hearing of 
the Energy Subcommittee. Today, we will hear testimony about 
H.R. 3890, To Reauthorize the Steel and Aluminum Energy 
Conservation Technologies Competitive Act of 1988. This bill 
will reauthorize a research and development program at the 
Department of Energy (DOE) aimed at improving the energy 
efficiency of the metals industry. I would like to commend my 
colleague, Representative Melissa Hart, for the great work she 
has done for this subcommittee and for the many efforts she has 
undertaken on behalf of her constituents in Pennsylvania. When 
any of us in Congress think of the metals industry, we think of 
Melissa Hart, and I trust her constituency knows what a 
tireless and indomitable advocate they have in her.
    Just yesterday, I chaired a hearing of this subcommittee on 
the broader issue of energy efficiency and renewable energy 
R&D. So why are we focusing on our hearing today on the metals 
industry? Well, first of all, the metals industry is highly 
energy-intensive. Taken together, the steel, aluminum, and 
copper industries account for more than 10 percent of 
industrial energy usage in the United States. And we all know 
that President Bush's national energy plan recognized that 
improving energy efficiency in our most energy-intensive 
industries could yield large improvements in productivity, 
product quality, safety, and pollution prevention.
    Second, we have a strategic national interest in helping 
our metals industry remain competitive. For any industry, 
energy efficiency means that you achieve increased production 
without increased energy consumption or cost. Improving energy 
efficiency helps improve the bottom line, making American metal 
products more competitive on the global market. That means more 
jobs here at home.
    But energy efficiency is more than just lower costs. 
Reducing energy use means reducing our emissions of pollutants 
and the greenhouse gases and increasing our energy security. In 
this way, energy efficiency just makes sense, dollars and 
cents, for the Nation.
    Our hearing today will look at what we have accomplished 
through R&D and energy efficiency and how those accomplishments 
have been put to use in the most energy-intensive industry, 
metals. Perhaps most importantly, we will explore what we can 
do to strengthen our efforts in this area.
    [The prepared statement of Mrs. Biggert follows:]
              Prepared Statement of Chairman Judy Biggert
    Good morning, and thank you for coming to this hearing of the 
Energy Subcommittee. Today, we will hear testimony about H.R. 3890, the 
Steel and Aluminum Energy Conservation and Technology Competitiveness 
Act. This bill would reauthorize a research and development (R&D) 
program at the Department of Energy aimed at improving the energy 
efficiency of the metals industry.
    I'd like to commend my colleague, Representative Melissa Hart, for 
the great work she has done for this subcommittee, and for the many 
efforts she has undertaken on behalf of her constituents in 
Pennsylvania. When any of us in Congress think of the metals industry, 
we think of Melissa Hart, and I trust her constituents know what a 
tireless and indomitable advocate they have in her.
    Just yesterday, I chaired a hearing of this subcommittee on the 
broader issue of energy efficiency and renewable energy R&D. So why are 
we focusing our hearing today on the metals industry?
    First of all, the metals industry is highly energy-intensive. Taken 
together, the steel, aluminum, and copper industries account for more 
than 10 percent of industrial energy usage in the United States. And we 
all know that President Bush's National Energy Plan recognized that 
improving energy efficiency in our most energy-intensive industries 
could yield large improvements in productivity, product quality, 
safety, and pollution prevention.
    Second, we have a strategic national interest in helping our metals 
industry remain competitive. For any industry, energy efficiency means 
that you achieve increased production without increased energy 
consumption or costs. Improving energy efficiency helps improve the 
bottom line, making American metal products more competitive on the 
global market. That means more jobs here at home.
    But energy efficiency is more than just lower costs. Reducing 
energy use means reducing our emissions of pollutants and greenhouse 
gases, and increasing our energy security. In this way, energy 
efficiency just makes sense--dollars and cents--for the Nation.
    Our hearing today will look at what we've accomplished through R&D 
in energy efficiency, and how those accomplishments have been put to 
use in the most energy intensive industry--metals. Perhaps most 
importantly, we'll explore what we can do to strengthen our efforts in 
this area. I am now delighted to turn to my colleague from 
Pennsylvania, the sponsor of H.R. 3890, Melissa Hart, who will tell us 
more about her proposed legislation.

    Chairwoman Biggert. I am now delighted to recognize the 
Ranking Member from Connecticut, Mr. Larson.
    Mr. Larson. Thank you, Madame Chairman. And I want to thank 
our witnesses for joining us today and also providing your 
expert testimony to the panel.
    I am glad that we have a chance to examine Congresswoman 
Hart's bill reauthorizing the metals R&D program, which our own 
Jim Turner on our staff, I believe, originally wrote. And I 
think that is rather significant. The implications for the 
programs, such as this, extend far beyond steel and the 
aluminum industry. It is no secret that our domestic 
manufacturing capabilities are quickly heading overseas. And 
once they are gone, it is difficult to get these back. 
Congresswoman Hart is to be applauded for her efforts. I am 
sure she is lobbying President Bush as we speak, but I hear 
from Jack Mertha and Mike Doyle from Pennsylvania as well and 
Members of Congress, as I have pointed out, who share similar 
concerns.
    To keep this capacity at home, our industries must be the 
most technologically advanced in the world, recognize that the 
steel industry faces intense competition while being limited in 
its capabilities to conduct research to develop the cleanest, 
most efficient technologies. I believe that the Federal 
Government has an obligation to step in and use its vast 
resources to facilitate cooperative research and development 
with industry.
    The Department of Energy has a long and successful history 
of partnerships with industry. For example, through the 
Industries of the Future Program, the Department has seen 
substantial technological benefits in a wide range of industry 
sectors. Research programs in mining, chemicals, forest 
product, agriculture, glass, and petroleum have been conducted 
in addition to the work done on steel and aluminum. Together, 
these industries employ a very large part of the domestic 
manufacturing workforce. And we all know from manufacturing 
that it is a value-added industry. In my home state of 
Connecticut, we know that manufacturing has a four to one 
relationship in terms of the jobs that it creates. And so these 
are incredibly important industries that we must preserve and 
work in collaborative and collective enterprise with to make 
sure that we provide for their ongoing sustainability.
    Regrettably, we are used to seeing the Administration take 
money away from valuable research and development at DOE, but 
by cutting funding for the Industries of the Future by 53 
percent, they have sent a very clear signal to the industrial 
sector that says, ``You are on your own.'' I believe, and I 
think my view is shared by many, that this is the wrong message 
to send.
    The benefits of sustaining R&D partnerships with industry 
in this area are many. We see the results in the energy savings 
and the cleaner environment, competitive industries, high-
paying jobs, and ultimately, a solid foundation for our 
economy.
    I look forward to hearing from our experts, and again, I 
would congratulate Congresswoman Hart, and hope that she was 
successful in her lobbying effort with the President.
    [The prepared statement of Mr. Larson follows:]
          Prepared Statement of Representative John B. Larson
    Thank you Madame Chairman. And thank you to our witnesses for 
joining us today and providing your expert testimony.
    I am glad that we have a chance today to examine H.R. 3890, 
Congresswoman Hart's bill reauthorizing the metals R&D program at the 
Department of Energy. The implications for programs such as this extend 
far beyond the steel and aluminum industries. It is no secret that our 
domestic manufacturing capabilities are quickly heading overseas. And 
once they are gone, these are jobs that we won't get back.
    To keep this capacity at home, our industries must be the most 
technologically advanced in the world. We recognize that the steel 
industry faces intense competition while being limited in its 
capabilities to conduct research to develop the cleanest, most 
efficient technologies. I believe that the federal government has an 
obligation to step in and use its vast resources to facilitate 
cooperative research and development with industry.
    The Department of Energy has a long and successful history of 
partnerships with industry. For example, through the Industries of the 
Future program, the Department has seen substantial technological 
benefits in a wide range of industrial sectors. Extensive research 
programs in mining, chemicals, forest products, agriculture, glass and 
petroleum have been conducted, in addition to the work done on steel 
and aluminum. Together, these industries employ a very large part of 
the domestic manufacturing workforce.
    I believe our witnesses would agree that technologies transferred 
out of those cost-shared programs resulted in significant gains in 
efficiency as well as development of environmentally sound processes.
    Regrettably, we are used to seeing the Administration take money 
away from valuable research and development at DOE. But, by cutting 
funding for Industries of the Future by 53 percent, they have sent a 
very clear signal to the industrial sector that says, ``You're on your 
own.''
    The benefits of sustaining R&D partnerships with industry in this 
area are many. We see results in energy savings, a cleaner environment, 
competitive industries, high-paying jobs and ultimately a more solid 
foundation for our economy. That is why it is important for us to work 
together to make bills such as H.R. 3890 as effective as they can be to 
achieve the goal of maintaining U.S. global competitiveness in core 
industries.

    Chairwoman Biggert. You yield back?
    Mr. Larson. I yield back.
    Chairwoman Biggert. Yes.
    Now that we have said all of those nice things that 
Congresswoman Hart did not hear, I am delighted to yield to the 
sponsor of H.R. 3890, Melissa Hart, who will tell us more about 
her proposed legislation before we begin with the witnesses.
    Ms. Hart. Thank you, Madame Chair. Thank you, also, Mr. 
Ranking Member. I did not hear it, but the very end sounded 
good to me.
    Also, I want to thank the Subcommittee and Chairman 
Boehlert for calling this hearing to discuss the legislation, 
H.R. 3890, To Reauthorize the Steel and Aluminum Energy 
Conservation Technologies Competitiveness Act of 1988. The 
devastating effects on the economy from the collapse of the 
domestic steel industry in the '70s and the early '80s were 
certainly a problem for us to maintain our footing and 
certainly to move forward. Back in my District, which, at the 
time, was very heavily dependent on steel, in the city of 
Aliquippa, there were 15,000 steel-producing jobs in the city 
alone, and there are probably fewer than that number living 
there at this time. Currently, there are 15,000 steel-producing 
jobs in all of not only my District but including some other 
counties: Butler, Fayette, Washington, Westmoreland, Beaver, 
and Allegheny counties in Western Pennsylvania, in fact.
    Recently, we saw the complete--almost the complete folding 
of the industry, as it has been under siege by unfair trade 
practices, such as dumping, by foreign competitors and really 
with complicit approval, really, from their governments.
    The purpose of the original legislation was to authorize 
federal cost sharing of the research that needs to be done for 
the metals industry. The legislation, at the time, established 
three goals. One was energy efficiency, the other, increasing 
competitiveness of our industry worldwide, and also improving 
the environment. Now the steel industry and the Department of 
Energy continued this partnership under the Metals Initiative 
and its predecessor, the Steel Initiative, even after the 
authorization expired by annually re-appropriating, so 
obviously this Congress has believed repeatedly that this is an 
important goal to pursue.
    For fiscal year 2005, the Administration only recommended a 
total of $6.5 million and that was broken down as $3.8 million 
for steel, $2.7 million for aluminum, which is half of the 
$13.3 million that had been provided in the last budget in 
2004. This legislation would reauthorize the original 1988 Act 
and extend it through 2009 at a constant level of $10 million 
per year.
    Over the years, 58 steel companies and 23 research 
organizations have participated in and benefited from this 
program. Many of those companies are from the region I 
represent, including two who are participating today in this 
hearing, INTEG Process Group and United States Steel. I want to 
thank them for being here. But also in my region, the 
University of Pittsburgh and Carnegie-Mellon University have 
participated and, I believe, added quite a bit to the 
advancement of the industry as well. Obviously, that is not 
only true in my region, I know it is true also in the Midwest 
and in the Northeast and now in other regions of the United 
States that have become more competitive and more involved in 
the steel industry.
    The Metals Initiative has helped push private research 
investment to pursue public goals, and I look forward to 
hearing from our witnesses regarding those issues, and I thank 
you, Madame Chairman.
    [The prepared statement of Ms. Hart follows:]
           Prepared Statement of Representative Melissa Hart
    I would like to thank Madam Chair of the Energy Subcommittee, and 
Congressman Boehlert, Chairman of the Science Committee, for calling 
this hearing to discuss issues around my legislation H.R. 3890, To 
Reauthorize the Steel and Aluminum Energy Conservation and Technology 
Competitiveness Act of 1988.
    As a lifelong Western Pennsylvanian, I saw the devastating effects 
on my region by the collapse of the domestic steel industry in the 
1970s and early 1980s. In the 1960's there were 15,000 steel-producing 
jobs in the City of Aliquippa alone. Currently, there are 15,000 steel-
producing jobs in all of Allegheny, Beaver, Butler, Fayette, Washington 
and Westmoreland counties combined. Recently, we almost saw the 
complete folding of the industry as they were attacked by unfair trade 
practices and dumping by foreign competitors.
    However, the steel industry itself has worked within itself to stay 
efficient, cost effective and productive, despite these exterior set 
backs. As one of the largest energy consumers in manufacturing they 
sought way to be energy efficient and environmentally sensitive. In 
such a cash strapped business, they needed the help of the Federal 
Government to be able to seek these benefits. The purpose of the 
original legislation was to authorize federal cost sharing of research 
in the metals industry. The legislation established three goals: 
energy-efficiency, increasing the competitiveness of U.S. industry and 
improving the environment. The steel industry and Department of Energy 
continued this partnership under the Metals Initiative, and its 
predecessor, the Steel Initiative, even after the authorization 
expired.
    While the Metals Initiative benefited from years of high funding 
levels, we have seen a steady decline in the funding over the last four 
years. For the fiscal year 2005 the Administration only recommended a 
total of $6.5 million ($3.8 million for steel, $2.7 for aluminum) which 
is half the $13.3 million provided in 2004. My legislation would 
reauthorize the 1988 Act through 2009 at a constant level of $10 
million per year. However, this funding level in my opinion, is a base 
to start from, not a ceiling and I look forward to hearing the opinions 
of our witnesses on this matter.
    Over the years 58 steel companies and 23 research organizations 
have participated and benefited from the program. Many of those 
companies are from my region including two participating today INTEG 
Process Group and U.S. Steel, but also universities in my region, 
including the University of Pittsburgh and Carnegie Mellon University. 
The Metals Initiative has helped push private research investments to 
pursue public goals and I look forward to hearing from our witnesses 
regarding these issues.

    Chairwoman Biggert. And I thank you.
    [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 H.R. 3890, a bill to reauthorize energy 
efficiency research and development at the Department of Energy to 
support the domestic metals industry.
    H.R. 3890, introduced by my colleague Melissa Hart, would establish 
metal research and development funding for the next five years. The 
bill provides federal incentives for public-private research and 
development projects in an effort to increase the energy efficiency and 
competitiveness of the U.S. metals industry.
    As a member of the Steel Caucus, this funding would allow the 
continuation of the steel research and development that has led to 
significant technological and economical benefits and advancement. 
Further, I believe important investments like this will assist in 
maintaining much-needed jobs.
    I want to thank the witnesses for appearing before this committee 
and look forward to their testimony.

    Chairwoman Biggert. I would now like to welcome the members 
of our witness panel today, and I look forward to hearing your 
testimony and learning from each of you.
    Our witnesses today are Mr. Douglas L. Faulkner. He is the 
Principal Deputy Assistant Secretary for Energy Efficiency and 
Renewable Energy at the U.S. Department of Energy. Mr. Richard 
Shulkosky, Vice President for Sales, Marketing, and Product 
Development at the INTEG Process Group. Prior to joining INTEG, 
he served in several posts in the metal industry including 
Manager of Manufacturing and Technology for the American Iron 
and Steel Institute in Washington, DC. Welcome. Ms. Lisa 
Roudabush currently is the General Manager of Research for the 
United States Steel Corporation where she oversees the 
company's research and technology center in Monroeville, 
Pennsylvania. Dr. Ronald Sutherland is a Consulting Economist 
and Adjunct Professor of Law at the George Mason University 
School of Law. His experience includes 17 years as an economist 
at two DOE national laboratories and 2 years as a senior 
economist at the American Petroleum Institute.
    So thank you all for coming, and if I slaughtered your 
name, please let me know, because I have--I usually do at least 
with one of the panel.
    So thank you. Before we begin, just let me remind you that 
we ask you to keep your remarks to five minutes, and I think 
most often, if you haven't gotten through your testimony, we 
will be asking questions, which will bring about further 
exploration of that testimony.
    And without objection, all written testimony will be 
inserted in the record.
    And after your five minutes, then we will ask--the 
Committee will ask questions of you, and we will each try and 
keep our questions to five minutes as well. In fact, we will. 
We are a little bit better than, sometimes, the witnesses. So 
we will begin with Mr. Faulkner.

    STATEMENT OF MR. DOUGLAS L. FAULKNER, PRINCIPAL DEPUTY 
ASSISTANT SECRETARY FOR ENERGY EFFICIENCY AND RENEWABLE ENERGY, 
               UNITED STATES DEPARTMENT OF ENERGY

    Mr. Faulkner. Madame Chair, Members of the Committee, thank 
you for inviting me to testify at your hearing today. My oral 
statement is a summary of my written testimony, which has 
already been submitted for the record.
    The Department of Energy's steel research and development 
effort was established in 1986 under the Steel Initiative, 
Public Law 99-190. That was later expanded by the Steel and 
Aluminum Energy Conservation and Technology Competitiveness Act 
of 1988, commonly referred to as the Metals Initiative. Our 
office promotes collaborative, cost-shared public R&D with the 
metals industries, the DOE national labs, universities, states, 
and others.
    Steel production is one of the most energy-intensive 
industries in the United States, and steel-makers are highly 
motivated to reduce energy intensity. While the steel industry 
has made significant progress in reducing energy intensity over 
the past several decades, the U.S. steel industry consumes 
approximately two quadrillion Btu's of energy each year, 
accounting for about two percent of all U.S. energy 
consumption. We estimate that the steel industry can save 20 to 
30 percent of its energy costs by applying advanced energy 
efficiency technologies.
    The strategy of DOE's Steel Industry of the Future R&D 
effort is to foster revolutionary iron-making and steel-making 
projects as well as incremental improvements to existing 
processes. Since 2001, the program has increased its emphasis 
on steel-making ``Grand Challenge'' concepts that promise to 
maximize energy savings. This shift in focus should produce 
large drops in industry energy intensity over the long-term.
    In the mid 1990s, DOE worked with the American Iron and 
Steel Institute to develop broad goals for the program and 
established a unified research agenda, the Steel Industry 
Technology Roadmap, to guide R&D collaboration. A revised 
Roadmap was released in 2002 to reflect changes in the industry 
and emerging technological priorities. DOE is providing cost-
sharing for approximately 25 steel-specific R&D projects, 
including the revolutionary Mesabi Nugget Iron-making Project, 
which, when combined with other funds, totals $10 million 
annually in public/private investment.
    While the U.S. aluminum industry has reduced its energy 
intensity by 58 percent over the past 40 years, the aluminum 
industry still consumes approximately 800 trillion Btu of 
energy each year, slightly below one percent of all U.S. energy 
use. Based on a recent study, the energy consumed by the U.S. 
primary aluminum industry is more than three times greater than 
what is theoretically necessary. Secondary processing also 
offers many cost-effective energy savings opportunities.
    My office has reviewed H.R. 3890 and offers the following 
comments. Regarding reauthorizing appropriations to DOE for 
each of fiscal years 2005 through 2009, the Department does not 
object to this authorization--or reauthorization. The 
Department's fiscal year 2005 request for the Steel and 
Aluminum Industries of the Future is $3.8 million for steel and 
$2.7 million for aluminum, for a total of $6.5 million. Funding 
for this program is, of course, always subject to the annual 
appropriations process.
    Regarding amending the list of projects that DOE is to 
consider for research, we believe that both of the issues in 
this category are currently already being addressed through the 
Steel Industry of the Future implementation. The current 
research focus areas are chosen by industry and cover key steel 
manufacturing processes and a broad range of product 
applications, including the development of advanced sheet and 
bar steels listed in the legislation. DOE is already working in 
partnership with the U.S. steel industry through the American 
Iron and Steel Institute to help it achieve its Climate Vision 
commitment.
    Regarding abolishing the National Institute of Standards 
and Technology's program of steel and aluminum research, the 
current Department of Energy Steel and Aluminum Industries of 
the Future partnerships address selected instrumentation and 
measurement R&D that are considered high priority by the 
industry. We have no objection to the elimination of this 
program.
    Regarding updating the requirement for DOE to report 
annually to the President and Congress on progress of the 
program, DOE already publishes annual reports for the Steel and 
Aluminum Industries of the Future R&D activities. Additionally, 
the Department publishes a multi-year program plan and an 
annual operating plan for the aluminum and steel areas.
    Madame Chair, this concludes my prepared remarks. I would 
be happy to answer any questions you have, or the Committee.
    [The prepared statement of Mr. Faulkner follows:]
               Prepared Statement of Douglas L. Faulkner
    I appreciate the opportunity to discuss the Department of Energy's 
Steel and Aluminum Industries of the Future Research and Development 
(R&D) activities and to comment on H.R. 3890, the Steel and Aluminum 
Energy Efficiency and Technology Competitiveness Act.
    The DOE's steel R&D effort was established in 1986 with a goal to 
increase significantly the energy efficiency of processes that produce 
steel under the Steel Initiative (Public Law 99-190). The Steel 
Initiative was later expanded by the Steel and Aluminum Energy 
Conservation and Technology Competitiveness Act of 1988, to include 
aluminum, which is commonly referred to as the Metals Initiative. The 
1988 Act directs the Secretary to re-establish an industrial energy 
conservation and a competitive technology program to conduct scientific 
research and development of steel and aluminum technologies. The 
purpose of the program is to increase the energy efficiency, 
international competitiveness and environmental performance of these 
American industries by aligning the research and development resources 
of industry and government. The program promotes collaborative, cost-
shared, public-private research and pre-competitive development, 
bringing together the expertise and experience of the metals 
industries, the DOE National Laboratories, universities, states and 
others.

Steel Industry of the Future

    As Members of the Subcommittee know, steel production is one of the 
most energy-intensive industries in the United States, and steel-makers 
are highly motivated to reduce energy intensity. While the steel 
industry has made significant progress in reducing energy intensity 
over the past several decades, the U.S. steel industry consumes 
approximately two quadrillion Btu's (quads) of energy each year, 
accounting for about two percent of all U.S. energy consumption. The 
cost of purchasing this amount of energy represents about 15 percent of 
the total manufacturing cost for steel. We estimate that the steel 
industry can save 20 to 30 percent of its energy costs by applying 
advanced energy efficiency technologies.
    The strategy of DOE's Steel Industry of the Future R&D effort is to 
foster both revolutionary iron-making and steel-making projects as well 
as incremental improvements to existing processes, thereby addressing 
both long-term goals and short-term needs. The program also strives to 
expand the industry's fundamental base of knowledge to optimize key 
processes and resource efficiency. Since 2001, the program has 
increased its emphasis on steel-making ``Grand Challenge'' concepts 
that promise to maximize energy savings. This shift in focus should 
produce large drops in industry energy intensity over the long-term.
    Both industry and universities widely participate in the Steel 
Industries of the Future R&D effort, providing both cost-sharing and 
in-kind support. Universities not only provide innovative technological 
solutions, they also indoctrinate the next generation of the scientific 
and engineering workforce. The involvement of industry accelerates 
technology transfer and dissemination of research results. Industry 
partners represent the diversity of the steel industry and include 
integrated producers, mini-mill producers, suppliers, and end-users in 
several industries. Strong industry involvement ensures direct 
application of research results and testifies to the importance of this 
cost-shared research partnership. Involving industry in the early R&D 
stages helps accelerate the development and application of energy-
efficient technologies.
    In the mid 1990s, DOE facilitated the development of a steel 
industry technology roadmap to help identify energy efficiency 
priorities mutually beneficial to government and industry. Led by the 
American Iron and Steel Institute, the industry worked to develop broad 
goals for the program and established a unified research agenda--the 
Steel Industry Technology Roadmap--to guide collaborative research, 
development, and demonstration. By reaching a consensus on industry-
wide goals and R&D priorities, the industry has been able to attract 
public and private investment for new technology development. 
Collaborative teams share the costs and risks. The Roadmap was revised 
in 2002 to reflect changes in the industry and emerging technological 
priorities. DOE and its partners have jointly commercialized about 15 
technologies and have disseminated valuable scientific information that 
will help steel-makers improve their productivity, efficiency, and 
product quality.
    The R&D priorities and needs identified in the Roadmap provided 
valuable input to DOE's internal planning process. DOE is providing 
cost-sharing for approximately 25 steel-specific R&D projects, which 
when combined with other funds, totals $10 million annually in public-
private investment.
    These include:

          Mesabi Nugget Iron-making. DOE has successfully 
        demonstrated the technical and economical viability of this 
        direct iron-making technology which uses 30 percent less energy 
        compared to the traditional route of making iron in a blast 
        furnace. The Department will participate in a full-scale pilot 
        campaign to reduce the technical risk even further. This 
        revolutionary technology eliminates the need for the 
        environmentally problematic coke-making process required for 
        traditional iron-making.

          Novel Direct Steel-making by Combining Microwave, 
        Electric Arc, and Exothermal Heating Technologies. We have made 
        significant progress in defining this next generation steel-
        making concept which would eliminate the need for a separate 
        iron-making step and greatly reduce the energy intensity of the 
        overall steel-making process. This technology should be market-
        ready by the end of the decade.

          Future Steel-making Processes. Carnegie Mellon 
        University and U.S. Steel are examining the feasibility of 
        using a combination of proven technologies to produce iron more 
        efficiently and with lower capital and operating costs. The 
        goal is to develop a flexible fossil fuel-based process as an 
        alternative to energy- and emissions-intensive coke-based blast 
        furnace iron-making.

Aluminum Industry of the Future

    While the U.S. aluminum industry has reduced its energy intensity 
by 58 percent over the past 40 years, the aluminum industry still 
consumes approximately 800 trillion Btu of energy each year, or 
slightly below one percent of all U.S. energy use. Based on a recent 
study, the energy consumed by the U.S. primary aluminum industry is 
more than three times greater than what is theoretically necessary. In 
addition to the savings in primary aluminum production, secondary 
processing offers many cost-effective savings opportunities.
    Like the Steel Industry of the Future R&D effort, this government-
industry partnership performs high-impact research projects on primary, 
melting, and forming operations in aluminum production. Fifty percent 
of DOE's funding is directed toward lowering the energy required to 
produce primary aluminum metal, the largest opportunity for improving 
energy efficiency.
    Current projects include:

          Aluminum Carbothermic Technology. We have made 
        significant progress in designing the prototype carbothermic 
        reactor. Successful development of this revolutionary 
        technology will provide 23 percent energy saving and 32 percent 
        in emissions reduction. Additionally, this technology has a 
        smaller footprint than the existing Hall-Heroult Cell and could 
        be sited near the secondary customers plant.

          Vertical Flotation Melter. Researchers have developed 
        a continuous melting system that uses the thermal energy of the 
        flue gas to preheat scrap aluminum. When fully commercialized, 
        this technology is projected to save almost 10 trillion Btu of 
        energy in the aluminum industry. This technology has been 
        proven at the single-plant level. DOE is participating in a 
        technology validation project to accelerate market acceptance.

The Steel and Aluminum Energy Efficiency and Technology Competitiveness 
                    Act

    DOE's Office of Energy Efficiency and Renewable Energy has reviewed 
H.R. 3890, which would enhance DOE's steel and aluminum initiatives. 
The bill would do the following:

1.  Reauthorize appropriations to DOE for the DOE program under the 
Steel and Aluminum Energy Conservation and Technology Competitiveness 
Act of 1988 of $10 million for each of fiscal years 2005-2009.

    The Department does not object to this authorization. The 
Department's Fiscal Year 2005 request for the Steel and Aluminum 
Industries of the Future is $3.8 million for steel and $2.7 million for 
aluminum, for a total of $6.5 million. Funding for this program is 
always subject to the annual appropriations process.

2.  Amend the list of projects DOE is to consider for research by:

          amending the project listed as ``the development of 
        advanced coatings for sheet steels'' to ``the development of 
        advanced sheet and bar steels,'' and

          expanding the list to include development of 
        technologies that reduce greenhouse gas emissions.

    We believe that both of these issues are currently being addressed 
through the Steel Industry of the Future R&D implementation. As 
mentioned above, the IOF partnership focuses on developing a wide range 
of new technologies that improve productivity, lower energy 
consumption, and reduce emissions. The research focus areas are chosen 
by industry and cover key steel manufacturing processes and a broad 
range of product applications, including ``development of advanced 
sheet and bar steels.''
    DOE is already working in partnership with the U.S. steel industry 
through the American Iron and Steel Institute (AISI) to help it 
implement activities in support of AISI achieving its Climate VISION 
commitment. A Climate VISION work plan is being developed where AISI 
will be voluntarily collaborating with the federal government on near-
term energy efficiency activities, cross-sectoral projects, and R&D to 
promote and commercialize advanced technologies.

3.  Abolish the National Institute of Standards and Technology's 
program of steel and aluminum research whose purpose was to provide 
necessary instrumentation and measurement R&D in support of activities 
conducted by DOE.

    The current Steel and Aluminum Industries of the Future 
partnerships address selected instrumentation and measurement research 
and development that are considered high priority by the industry. We 
have no objection to the elimination of this program.

4.  Update the requirement for DOE to report annually to the President 
and Congress on progress of the program to require a report at the 
close of FY 2005 and at the close of each following fiscal year.

    The DOE publishes annual reports for the Steel and Aluminum 
Industries of the Future R&D activities. Additionally, the Department 
publishes a multi-year program plan and an annual operating plan that 
includes the technical objectives and milestone charts for the Aluminum 
and Steel Program areas. It would be helpful if the requirement for a 
``Management Plan'' under the current Metals Initiative were updated to 
describe current roles and responsibilities of the organizations 
involved and to incorporate result-driven program management principles 
such as ``analytic-based planning'' and ``management by milestone'' 
that we currently use. The ``Research Plan'' under the Metals 
Initiative should also be modified to incorporate long-term strategic 
planning and priority setting and include the R&D needs identified in 
the industry technology roadmaps.
    Madame Chair, this concludes my prepared statement. I am happy to 
answer any questions the Subcommittee may have.

                   Biography for Douglas L. Faulkner
    Douglas Faulkner was appointed by President George W. Bush on June 
29, 2001, to serve as the political deputy in the Office of Energy 
Efficiency and Renewable Energy (EERE). This $1.2 billion research and 
development organization has over five hundred federal employees in 
Washington, D.C. and six regional offices, supported by thousands of 
contractors at the National Renewable Energy Laboratory and elsewhere.
    Mr. Faulkner oversees all aspects of EERE's operations in a close 
partnership with the Office's two career Deputy Assistant Secretaries. 
He has worked closely with Assistant Secretary David K. Garman to 
reorganize EERE, replacing an outdated and fragmented organization with 
what arguably is the most innovative business model ever used in the 
Federal Government. This has resulted in fewer management layers, fewer 
but more productive staff, streamlined procedures, stronger project 
management in the field and lower operating costs overall. These 
reforms have been recognized as a success by the White House and the 
National Association of Public Administration.
    Mr. Faulkner organized and led an internal management board which 
completely revamped EERE's biomass programs. Many projects were ended 
and those funds pooled for an unprecedented solicitation to refocus R&D 
for new bio-refineries.
    Interviews of Mr. Faulkner about renewable energy and energy 
efficiency have appeared on television and radio and in the print 
media.
    Before assuming his leadership post in EERE, Mr. Faulkner had 
progressed rapidly through the ranks of the civil service at the 
Central Intelligence Agency and the Department of Energy. In his over-
twenty year career he rose from junior China intelligence analyst to a 
nationally-recognized leader in bio-based products and a senior policy 
advisor to the Secretaries of Energy in both Bush Administrations.
    Born and raised in central Illinois, Principal Deputy Faulkner 
received a Bachelor's degree in Asian Studies from the University of 
Illinois and a Master's degree from the Johns Hopkins University, 
School of Advanced International Studies. He also attended the 
University of Singapore as a Rotary Scholar. At these institutions, he 
studied French and Mandarin Chinese languages. Mr. Faulkner played 
intercollegiate basketball at home and abroad.
    He is involved in his church and community as well as Boy Scouts 
and youth baseball. Mr. Faulkner was appointed in the early 1990s to 
two Arlington County, Virginia, economic commissions.
    Mr. Faulkner lives in Arlington, Virginia, with his wife and son.

    Chairwoman Biggert. Thank you very much.
    Mr. Shulkosky, if you would proceed.

   STATEMENT OF MR. RICHARD A. SHULKOSKY, VICE PRESIDENT FOR 
 SALES, MARKETING, AND PRODUCT DEVELOPMENT, INTEG PROCESS GROUP

    Mr. Shulkosky. Good morning. My name is Rick Shulkosky, and 
I am the Vice President and co-owner of INTEG Process Group. 
INTEG is a small engineering company located in Wexford, 
Pennsylvania outside of Pittsburgh. We provide technology for 
industrial clients, including the steel industry. I appreciate 
having the opportunity to share with you my thoughts on the 
benefit of the Metals Initiative to the steel industry.
    As with any company, in order to survive, a certain amount 
of resources have to be allocated to research. Several decades 
ago, many steel companies in the U.S. had world-class research 
facilities. Today, those facilities are non-existent or a 
fraction of their original size. Instead, steel companies 
collaborate to develop new, high-risk technologies, which will 
provide them with a competitive advantage versus foreign steel-
makers by developing new technologies that can lower their cost 
and improve the performance of the steel they produce, which in 
turn, lowers their customers' costs. The U.S. steel industry 
has to maintain a competitive advantage in technology, because 
they are at a competitive disadvantage in other cost factors, 
such as labor and social costs.
    I have personally been involved with collaborative research 
programs, and I would like to share with you some of the 
highlights of the program as I have experienced it.
    The Metals Initiative contains three important provisions: 
a 70/30 cost-share, ownership of the technology by industry, 
and a repayment provision.
    The first provision, a 70/30 cost-share, means that 
industry dollars go farther so that we can broaden and 
accelerate our research projects and increase our successes. 
The 70/30 cost-share is important, because by sharing the 
costs, steel companies have the proper incentive and buy-in to 
make sure that technology is needed by the industry and to help 
make it a success.
    The second provision requires the industrial participants 
to own the developed technology. Although they have a royalty-
free use of the technology, they also have an obligation to 
commercialize it.
    And the last provision is the repayment provision. This 
focuses the research projects with the greatest chance of 
success, which gets the technology on the plant floor faster 
and allows royalties from sales to be paid.
    INTEG, my company, has been involved with the Metals 
Initiative research for several years working on the 
development of the AISI Hot Strip Mill Model under the 
Technology Roadmap program. This is a PC-based computer 
software program that simulates the rolling of steel in the hot 
mill. The model can help the user to optimize production and 
conduct what-if studies to improve their process operations and 
to develop new products more cost-effectively in an off-line 
manner. Several of our steel company participants have already 
realize savings by using the model. INTEG is also the 
commercialization partner to sell the Hot Strip Mill Model. 
Initial royalties have already been paid with ongoing royalties 
expected to occur from future sales.
    In summary, I believe the Metals Initiative must be 
reauthorized and continued to be funded. I have spent all of my 
20-plus year career working in the steel industry. I have seen 
the ups and downs of the industry with the most recent years 
being some of the most traumatic in terms of the restructuring 
taking place. From my perspective, I see stronger companies 
emerging, but I have no idea how they will be able to continue 
to develop leading technologies without support. To make 
matters worse, not only are the steel companies getting smaller 
in terms of research resources, the engineering companies who 
once flourished in the Pittsburgh area and elsewhere developing 
new technologies are also smaller or no longer around.
    We need the U.S. steel industry, and we need it to be 
competitive through innovative research. We need a viable 
metals industry, because it is vital to the national security 
and economic prosperity of the U.S. The Metals Initiative has 
proven itself in the past, and I am sure it will in the future.
    Thank you.
    [The prepared statement of Mr. Shulkosky follows:]
               Prepared Statement of Richard A. Shulkosky
    Good morning. My name is Rick Shulkosky and I am the Vice President 
and co-owner of INTEG Process Group. INTEG is a small engineering 
company located in Wexford, PA who primarily develops technology for 
industrial clients, including the steel industry.
    I am here to discuss the Metals Initiative, which is the foundation 
upon which steel industry collaboration is based. It is the only 
collaborative research program concerned with industrial 
competitiveness. I appreciate having the opportunity to share with you 
my thoughts on the benefit of the Metals Initiative to the steel 
industry.
    As with any company, in order to survive, a certain amount of 
resources have to be allocated to research. New products and processes 
must be developed to be able to increase the value proposition of your 
final product. Customer's requirements change. New competitors emerge. 
Costs need to be controlled. Several decades ago, almost every steel 
company had world-class research facilities. Today, those facilities 
are non-existent or are a small fraction of their original size.
    These dedicated research facilities are gone because it is cost-
prohibitive to have your own extensive research facility. Instead, 
steel companies collaborate to develop new technologies, which will 
provide them with a competitive advantage vs. foreign steel-makers. By 
developing new technologies, they can lower their cost and improve the 
performance of the steel they produce, which in turn lowers their 
customer's cost. As we all know, the world is getting smaller and 
becoming one global trading zone. The U.S. steel industry has to 
maintain a competitive advantage in technology because they are at a 
competitive disadvantage in other cost factors [e.g., labor and social 
costs] vs. our international competitors.
    With your continued support, the Metals Initiative can provide the 
needed funding to continue the steel industry's collaborative research 
programs. Metals Initiative funds accelerate the delivery of technology 
to the plant floor and increase the breadth of technology advances we 
can make. I have personally been involved with the collaborative 
research activities of the steel industry and have experienced the 
reasons why this method of research works. I would like to give you 
some highlights of the program in action.
    The Metals Initiative is structured to help domestic steel 
producers achieve a competitive advantage while gaining additional 
benefits such as lower energy consumption, and it has three important 
provisions:

          A 70/30 cost-share for conceptual, bench-scale and 
        pilot-scale research [demonstration scale projects are 50/50],

          Ownership of the technology by industry and

          A repayment provision.

    The first provision, a 70/30 cost-share means that industry dollars 
go farther, so that we can broaden and accelerate our research 
projects. Individual steel companies cannot afford the inherent high-
risk and total costs associated with research projects. Steel companies 
are small and medium sized businesses that can invest on the order of 
one half percent of sales in R&D, compared to a software or 
pharmaceutical company that invest up to 20 percent of sales. The 
Metals Initiative provides the proper framework because the steel 
companies are responsible for a share of the costs. A steel company 
investing its precious resources ensures that the projects undertaken 
are of high-value. Sharing the costs among steel companies and with the 
Federal Government also allows us to increase the number of successes 
and gets results onto the plant floor faster by having multiple 
programs going on at the same time.
    The second provision requires the industrial participants in a 
project to own the developed technology. The participants get royalty-
free use of the technology, but also have an obligation to 
commercialize the developed technology. This provision ensures the 
widespread dissemination of the technology throughout the industry and 
provides opportunities for companies like mine to grow.
    The last key provision of the Metals Initiative is the repayment 
provision. It requires the government's investment to be repaid from 
the commercial licensing of developed technology. This focuses the 
research on projects with a chance of success and goes right to the 
competitive advantage intent--it gets technology on the plant floor.
    INTEG has been involved in Metals Initiative research for several 
years working on the development of the AISI Hot Strip Mill Model 
(HSMM). The HSMM is a computer program that runs on a PC that allows a 
steel company to simulate the complete hot rolling process. The model 
can help the user to optimize production, conduct what-if studies and 
develop new products to lower their overall costs. Several of our 
industrial participants have already realized savings by using the 
model.
    One participant was using the HSMM to conduct studies for their hot 
mill modernization program. The model helped them to analyze different 
upgrade options so they could select the most cost effective and 
optimal configuration. Another participant is using the model to reduce 
the number of trials needed to develop a new grade of steel saving them 
thousands of dollars in inefficient and wasted mill trials.
    INTEG also benefits by being able to employee several people 
directly involved with the project research and by being the 
commercialization partner to sell the finished product. Initial 
royalties have already been paid with on-going royalties to occur from 
future sales.
    In summary, I believe the Metals Initiative must be reauthorized 
and continue to be funded. I have spent all my 20-plus year career 
working in the steel industry. I have seen the ups and downs of the 
industry with the most recent years being one of the most dramatic in 
terms of the restructuring taking place. From my perspective, I see 
stronger companies emerging, but I have no idea how they will be able 
to continue to develop leading technologies without support. Not only 
are the steel companies getting smaller in terms of research resources, 
the engineering companies who once flourished in the Pittsburgh area 
developing new technologies are also smaller or no longer around.
    We need the U.S. steel industry and we need it to be competitive 
through innovative research. The Metals Initiative has proven itself in 
the past and I am sure it will in the future.

                   Biography for Richard A. Shulkosky
    Richard Shulkosky is responsible for all sales, marketing and 
product development activities at the company, as well as all office 
operations, including accounting, financial, and human resources. Prior 
to INTEG, he served as general manager of sales for Pittsburgh-based 
Kvaerner Metals, where he was responsible for the sales activities for 
three automation offices in the United States. Mr. Shulkosky also 
served as manager of manufacturing and technology for the American Iron 
and Steel Institute in Washington, D.C. and held various positions at 
Dave McKee (Kvaerner) and U.S. Steel Corp.
    He holds a Bachelor of Science degree in Electrical Engineering and 
a Master's degree in Business Administration from the University of 
Pittsburgh.

    Chairwoman Biggert. Thank you very much.
    Ms. Roudabush, you are recognized for five minutes.

    STATEMENT OF MS. LISA A. ROUDABUSH, GENERAL MANAGER OF 
                RESEARCH, U.S. STEEL CORPORATION

    Ms. Roudabush. Thank you. My name is Lisa Roudabush. I am 
the General Manager of the United States Steel Corporation. We 
have steel-making operations and joint ventures in ten states 
in this country, and I am obviously here to offer my support 
and endorsement of the Metals Initiative Reauthorization bill.
    This has been a cornerstone of collaborative research for 
the steel industry for the past 15 years. U.S. Steel is an 
investor and an active investor in this program. I appreciate 
the opportunity to describe to you maybe some more personal 
U.S. Steel relationships of how we participated in this program 
and review the benefits that we can attribute to our ability to 
achieve the goals of the initiative, which include 
strengthening our competitive position of the steel industry, 
advancing energy savings, and promoting environmental 
improvements.
    The first activity I would like to highlight is the 
Technology Roadmap program. This was formalized in 1997. It is 
a five-year program that supported 36 projects. The best 
illustration of realized benefits come from ten specific 
projects that dealt with the Advanced High Strength Steel. 
These projects advanced the findings of ULSAB, which was the 
Ultra-Light Steel Auto Body program consortium, to reduce the 
weight of automobiles, thereby advancing weight reduction, 
energy savings, and emissions control.
    The ten projects related to research in Advanced High 
Strength dealt with how to use the steel actually, how--the 
structure of the steel, the forming characteristics, and the 
joining characteristics. The findings of these studies allowed 
for our customers, actually, to have an understanding of how to 
use these steels, how to design with them, how they would form, 
how they would weld in their current processes. This led to an 
increased demand in High Strength Steel currently in the United 
States. In the past 10 years, we have seen a 52 percent 
increase in the use of High Strength Steels, and we project a 
40 percent additional increase in the next six years.
    The Advanced High Strength Steel applications have been 
rapidly adopted by our automotive manufacturers, including two 
models, which I will cite, the Chevy Malibu and the Chrysler 
Pacifica, which have a content of greater than 50 percent 
Advanced High Strength Steels. This led us, as steel-makers, to 
develop these products that our customers required. U.S. Steel 
has developed 50 new chemistries of steel over the past 10 
years in support of the Advanced High Strength Steel 
applications.
    The consumer benefits are evident with reduced vehicle 
weight, reduced fuel usage, reduced emissions. At the same 
time, we saw increased crash-worthiness, so increased safety, 
still using a low-cost metal: steel. The benefit projections 
calculated from only a seven percent market penetration of 
vehicles using commercially available High Strength Steels 
include an annual reduction in gas consumption of 171 million 
gallons, and in today's prices, that is upwards of $350 million 
to consumers, and a reduction in CO2 emissions of 
2.1 million tons.
    A second example is an example from one of our plants. The 
Mon Valley Edgar Thompson plant hosted the May 2000 DOE Office 
of Industrial Technology showcase of that in which four DOE-
sponsored technologies were installed and demonstrated. I won't 
go into detail about these, however, we are using two of these 
technologies daily. We have ordered new equipment based on 
these technologies. They are providing energy savings through 
our plants, mostly through improved productivity and reduced 
downtime, and are in the commercialization phase by the 
manufacturers of these technologies. The commercialization, 
again, leads to the fulfillment of the payback provision of the 
initiative.
    Through these activities, the Mon Valley works of U.S. 
Steel reduced energy consumption by seven percent as measured 
in MMBtu per ton of steel produced from the time frame of 1998 
through 2000. And this complements the recent AISI publications 
of data showing a reduced energy of 17 percent since 1990.
    Our third issue is the CO2 breakthrough 
initiative to develop new processes to minimize the release of 
CO2 to the environment in support of Climate Vision. 
Currently, nine industry companies have opted in to a two-year 
cost-sharing program, and we are asking for government funding 
of $2 million over two years for the phase one. This funding 
has not yet been committed, but we need to be aware of the 
global importance of this activity. We are already a year 
behind our global competition, and foreign governments have 
invested over $44 million with their steel industries up to 
this point. These are basic research activities, high-risk. No 
one single company could support this activity by itself, and 
this is a great example of the collaborative research program 
that is in the public interest that we are supporting through 
this initiative.
    In summary, the Metal Initiative is very important for a 
competitive, viable domestic steel industry. Federal dollars 
act as a multiplier and accelerator, and industry shares in 
this cost. It provides a way to maintain a viable scientific 
and educational community also. We have seen a positive impact 
from the Metals Initiative as we try to maintain a strong 
manufacturing base in the United States. Our steel is globally 
competitive. We are efficient, and we are productive despite 
the lower global labor cost disadvantage, health care cost 
disadvantage, currency policy, and government subsidies. The 
only way we can maintain our global competitiveness is through 
technology and technological advancements.
    Thank you.
    [The prepared statement of Ms. Roudabush follows:]
                Prepared Statement of Lisa A. Roudabush
    Good morning. I'm Lisa A. Roudabush, General Manager-Research for 
U.S. Steel Corporation. Thank you for the opportunity to testify. I'm 
here today to explain the importance of the Metals Initiative to our 
industry. The Metals Initiative has been at the center of steel 
industry research since the late 1980's and significant advances in 
melting, casting and rolling have been made in research projects under 
the Metals Initiative. For example, since 1990, energy utilization per 
ton of steel shipped has decreased 17 percent, much of it the result of 
collaborative research. This is particularly impressive for an industry 
composed mainly of small and medium-sized businesses, in fact if you 
were to combine the three largest steel companies into one, the company 
they would form would be four percent the size of General Electric.
    One of the most important programs under the Metals Initiative is 
the highly successful, highly leveraged Technology Roadmap Program 
(TRP), which has nearly 60 industrial participants. It brings together 
stakeholders from across the country for the purpose of developing next 
generation steel-making technology, reducing energy consumption in the 
steel industry and in downstream industries (such as automotive), while 
improving our environment.
    As an example, ten projects, leveraging $4.2 million of federal 
funding, have been focused on the development of Advanced High Strength 
Steels for automobile manufacturing. Advanced High Strength Steels 
enable the design of automobiles that are lightweight while retaining 
all the safety and affordability of a basic carbon steel. Porsche 
Engineering and the steel industry developed Ultra-Light Steel Auto 
Body--Advanced Vehicle Concept (ULSAB-AVC). It uses 80 percent Advanced 
High Strength Steel and results in 52 mpg (gas) and 68 mpg (diesel). 
Advanced High Strength Steels are rapidly being adopted by automakers--
in 2004 the Chevy Malibu and Chrysler Pacifica both use approximately 
50 percent AHSS. The following benefits are calculated using a market 
penetration of seven percent of ULSAB-AVC type vehicles, a low hurdle 
given the rapid adoption already evidenced:



    To summarize my example, here we have a set of projects that save 
nearly a barrel of oil (0.84) per federal dollar invested or, in terms 
of the environment, a ton of CO2 for every $2 of federal 
money invested, all the while delivering real technology to the plant 
floor to help us maintain a competitive advantage.
    Staying with our focus on the environment, the Metals Initiative 
specifically focuses research on reduction of CO2 emissions. 
The steel industry believes, as the Administration does, that 
technology development is the appropriate means for reducing greenhouse 
gases. Steel companies, as a sector, have joined the president's 
Climate Vision program and have committed to a goal of 10 percent 
reduction in energy intensity by 2012 over a 2002 baseline. There is a 
major international effort in the steel industry to eliminate CO2 
emissions, including governments and steel-makers in Europe, Korea, 
Japan and Canada. Foreign governments are cost-sharing this very high-
risk research. The European Commission will provide approximately 23 
million euro. The U.S. intends to be a part of this initiative, called 
the CO2 Breakthrough Program, and we will rely on the Metals 
Initiative for the necessary cost-sharing to help us develop and 
deliver technologies for CO2 abatement, such as carbon 
sequestration and the use of alternative fuels.
    Continuous technology development is at the heart of any industry's 
success and the Metals Initiative is the catalyst for steel industry 
research. Federal dollars accelerate the research and act as a 
multiplier--they allow more work to be done and to be delivered to the 
factory floor sooner, both critical for the health of any industrial 
sector in a global market. The federal cost-share has a positive impact 
on steel industry competitiveness compared to other government 
involvement in industry, e.g., various regulatory policies, monetary 
policy, pensions and health care, which are anti-competitive, in that 
they add cost. Much of the Metals Initiative research is done at 
universities around the country. Steel research at universities plays 
the lead role in the development of the next generation of workers in 
America's steel plants. So, the program develops technologies to 
maintain a healthy steel sector, and the healthy steel sector provides 
jobs. As an example, just the projects we have under consideration for 
2004 will add 95 jobs in western Pennsylvania.
    The terms of the Metals Initiative also allow us to protect 
proprietary information for up to five years, which gives us time to 
implement the developed technology and gain a competitive advantage. 
The Metals Initiative is the only federal program I am aware of that 
specifically cites competitive advantage as a goal. The results of our 
Metals Initiative research propagate through the entire supply chain of 
materials--higher performing steels equal higher performing consumer 
goods and a cleaner environment.
    I hope my colleague, Mr. Shulkosky, and I, have conveyed the 
importance of Metals Initiative research to our industry, in the 
broadest sense. Thank you for your attention, I would be happy to 
answer any questions.

                    Biography for Lisa A. Roudabush
    Lisa A. Roudabush is currently the General Manager of Research for 
the United States Steel Corporation, where she oversees the company's 
Research and Technology Center in Monroeville, Pa. Her appointment was 
effective September 1, 2003.
    Ms. Roudabush, 43, began working at U.S. Steel in 1982 as a student 
co-op at the Research and Technology Center in Monroeville, Pa. She 
joined the company that same year as a Management Associate at the 
Research Center and progressed through a series of increasingly 
responsible research engineer positions before she was named Research 
Manager for Coated Products in 1992.
    In 1994, Roudabush was transferred to the Quality Assurance 
department at Gary Works as Manager of Technology Planning. She moved 
through several different Quality Assurance positions in various areas 
of Gary Works before she was named Quality Assurance Manager of Sheet 
Products in 1997. Two years later she was promoted to Manager of 
Technology for the department, and in 2000 she was promoted to Manager 
of Process Technology at Mon Valley Works.
    Roudabush earned a Bachelor of Science degree in Metallurgical 
Engineering and Material Science from Carnegie Mellon University in 
1982 and has completed graduate-level work in Metallurgical Engineering 
and Engineering Management at the University of Pittsburgh.

    Chairwoman Biggert. Thank you very much.
    Dr. Sutherland, you are recognized for five minutes.

STATEMENT OF DR. RONALD J. SUTHERLAND, CONSULTING ECONOMIST AND 
ADJUNCT PROFESSOR OF LAW, GEORGE MASON UNIVERSITY SCHOOL OF LAW

    Dr. Sutherland. Thank you.
    Good morning. My name is Ronald J. Sutherland. I am an 
economist who has spent most of my career assessing energy 
policy issues. From 1980 through 1988, I worked at the Los 
Alamos National Laboratory. And from 1988 through 1997, I was 
employed by Argonne National Laboratory, but was located at the 
Department of Energy's building here in DC where I supported 
the DOE Policy Office and the Energy Information 
Administration. At present, I am an independent consulting 
economist and continue to work on energy policy issues. My 
testimony reflects only my own views. I am not associated with 
any organization that has an interest in this legislation.
    The history of the DOE Industrial Technology program is one 
of limited successes and probably produces net cost to 
taxpayers. These net costs result from three program 
characteristics: the DOE policy objective is to enhance energy 
efficiency, the program justification is based on market 
barriers, and three, the DOE program is not accountable in 
terms of providing benefits to taxpayers. The DOE focus on 
energy efficiency does not make business sense. It contributes 
neither to the productivity of business nor to the value of 
customers. Instead, businesses become more competitive by 
reducing average costs, increasing overall productivity, and 
particularly, by increasing the productivity of labor and 
capital.
    Energy efficiency is an inappropriate policy goal from the 
perspective of taxpayers. Indeed, the single most important 
point that Congress should recognize in forming energy policy 
is energy efficiency and the efficient use of energy resources 
are different and unrelated concepts. Programs and policies 
that contribute to energy efficiency may or may not improve the 
efficient use of energy resources. The flawed conceptual DOE 
model results in subsidizing technology development that does 
not improve the productivity of the industrial sector and does 
not produce net benefits to taxpayers.
    The DOE justifies its interference in private markets in 
terms of market barriers. However, the adoption of all new 
technologies, products, and processes is impeded by market 
barriers. Such barriers are merely benign characteristics of 
well functioning markets. A necessary condition for a 
beneficial government program is a market failure. There is no 
expectation that DOE programs reduce market failures. The DOE 
is not, and perhaps can not, be held accountable for its 
technology development investments. Consequently, the flawed 
policy model practiced by the DOE continues indefinitely, and 
DOE technology investments fail to have long-term commercial 
success.
    In a recent litigation case, I attempted to find an example 
of a new technology that penetrated the market quickly and 
obtained a substantial market share. In my search, I reviewed 
the OIT publication, Office of Industrial Technology's 
``Summary of Program Results,'' which summarizes the results of 
more than 100 commercially successful technologies. I found no 
examples of a technology success for my purpose. Instead, my 
overall reaction to the DOE 100 technology successes is that 
when the subsidy continues, technology development continues. 
When the subsidy stops, technology development and deployment 
also stop.
    I contacted an engineer in a private firm that was 
participating in this DOE program. The engineer stated that 
DOE's fixation on energy efficiency is inconsistent with the 
business objective of increasing overall productivity and 
reducing average cost. Consequently, the DOE objective in 
energy efficiency reduces the probability of a commercial 
success.
    While at Argonne National Laboratory, I undertook a study 
of six large energy-intensive industries in the United States. 
The report is known as ``The Argonne Six Industry Study.'' The 
study was based on the first-hand expertise of industry 
experts. The six industry include iron and steel as well as the 
aluminum industry. Although the purpose of that study was to 
focus on Kyoto Protocol, some results are important for current 
legislation. Note the following general findings from that 
study. The U.S. industries are losing competitiveness in world 
markets. U.S. plants are maintaining competitiveness in 
domestic markets. Domestic employment is declining continuously 
over time. Labor productivity is continuously increasing. No 
new ``greenfield'' plants will likely be constructed. Increased 
productivity results from capital investments in existing 
plants.
    The last two findings are crucial to this legislation 
currently being considered. If a successful commercialization 
of a DOE-sponsored technology requires a new plant, this plant 
is likely to be constructed in a foreign country. In this case, 
U.S. taxpayers would directly subsidize and contribute to job 
losses in the United States.
    If Congress continues through these programs, I offer the 
following suggestions. Taxpayers should be assured that most of 
the economic benefits from these DOE programs accrue in the 
United States. These benefits must be in the form of improved 
productivity, reduced costs, or reduced emissions of plants 
located in the United States. The proposed legislation uses the 
term ``domestic companies.'' This term is not sufficient to 
ensure that most of the benefit accrues within the U.S. The 
proposed legislation states that a purpose of the statute is to 
develop advanced technologies. My concern is that advanced 
technologies and processes are most feasible in new 
``greenfield'' plants. As the Argonne study concludes, 
productivity in energy-intensive industries is increased by 
retrofitting existing plants, not by constructing new plants in 
the U.S. The proposed legislation should be crafted more 
carefully to ensure that technology successes improve the 
productivity of domestic existing plants.
    The DOE policy goals should be specified so as to produce 
benefits to taxpayers resulting from long-term market success. 
The OIT report describes 100 technology successes and boasts 
the amount of energy saved by its various efforts. Merely 
reducing Btu provides no benefit to taxpayers or to the 
industrial sector. The rationale for taxpayer support for these 
DOE investments is that taxpayers share in the initial 
investments and investment costs but obtain benefits by long-
term commercial success and long-term environmental 
improvement. The DOE does not adequately specify the long-term 
business objective of improving overall productivity, reducing 
production costs, or increasing market share.
    Three, the net benefits to taxpayers from these DOE 
investments could increase if the DOE programs were subject to 
a higher level of accountability. I suggest that the 
legislation be revised to require the DOE to obtain an 
independent analysis of the economic benefits of its 
investments. The outside review must be conducted by 
independent experts, not by national labs or other financial 
beneficiaries of the DOE program. Furthermore, the review 
should be consistent with the basic economic principles of 
cost-benefit analysis. The independent analysis would also 
include suggestions for improving the DOE investment process.
    This concludes my prepared statement. Thank you.
    [The prepared statement of Dr. Sutherland follows:]
               Prepared Statement of Ronald J. Sutherland
    Good morning, my name is Ronald J. Sutherland. I am a Ph.D. 
economist, and have spent most of my career assessing energy policy 
issues. From 1980 through 1988, I worked at the Los Alamos National 
Laboratory. From 1988 through 1997, I was employed by Argonne National 
Laboratory, but was located at the Department of Energy's Forrestal 
building here in Washington, DC, where I supported the DOE Policy 
Office and the Energy Information Administration. At present, I am an 
independent consulting economist where I continue to work on energy 
policy issues. My testimony reflects my own views. I am not associated 
with an organization that has an interest in this legislation.
    The history of the DOE industrial technology program is one of 
limited success, and probably produces net costs to taxpayers. These 
net costs result from three program characteristics:

        1.  the DOE policy objective is to enhance energy efficiency;

        2.  the program justification is based on market barriers; and

        3.  the DOE program is not accountable in terms of providing 
        benefits to taxpayers.

    The DOE focus on energy efficiency does not make business sense; it 
contributes neither to the productivity of the business, nor to value 
to customers. Instead, businesses become more competitive by reducing 
average costs and increasing overall productivity, and particularly by 
increasing the productivity of labor and capital.
    Energy efficiency is an inappropriate policy goal from the 
perspective of taxpayers. Indeed, the single most important point that 
Congress should recognize in forming energy policy is: ``Energy 
efficiency and the efficient use of energy resources are different and 
unrelated concepts.'' \1\ Programs and policies that contribute to 
energy efficiency may or may not improve the efficient use of energy 
resources. Policies that contribute to the efficiency of using energy 
resources may or may not increase energy efficiency. Taxpayers benefit 
from using energy and all other resources more efficiently; taxpayers 
do not necessarily benefit from increased energy efficiency. The flawed 
conceptual DOE model results in subsidizing technology development that 
does not improve the productivity of the industrial sector, and does 
not produce net benefits to taxpayers.
---------------------------------------------------------------------------
    \1\ Ronald J. Sutherland, ``Energy Efficiency or the Efficient Use 
of Energy Resources,'' Energy Sources, Vol. 16, 1994, pp. 257-268.
---------------------------------------------------------------------------
    The DOE justifies its interference in private markets in terms of 
``market barriers.'' However, the adoption of all new technologies, 
products and processes is impeded by market barriers. Such barriers are 
merely benign characteristics of well functioning markets. A necessary 
condition for a beneficial government program is a market failure, and 
there is no expectation that DOE programs reduce market failures.\2\
---------------------------------------------------------------------------
    \2\ Ronald J. Sutherland, ``Market Barriers To Energy-Efficiency 
Investments,'' The Energy Journal, Vol. 12, No. 3, July 1991, pp. 15-
34.
---------------------------------------------------------------------------
    The DOE is not, and perhaps cannot, be held accountable for its 
technology development investments. In contrast, private research 
institutes, such as the Gas Technology Institute, are highly 
accountable to sponsors, whose participation is voluntary. 
Consequently, the flawed policy model practiced by the DOE continues 
indefinitely, and DOE technology investments fail to have long-term 
commercial success.
    In a recent litigation case, I attempted to find an example of a 
new technology that penetrated the market quickly and obtained a 
substantial market share. In my search, I reviewed the OIT publication, 
``Office of Industrial Technologies: Summary of Program Results'' which 
summarizes the results of more than ``100 commercially successful 
technologies.'' \3\ I found no examples of a technology success for my 
purposes. Instead, my overall reaction to the DOE 100 technology 
successes is that when the subsidy continues, technology development 
continues, when the subsidy stops, technology development and 
deployment also stop. In reviewing this document again, I find some 
technologies that appear to achieve market success, but the rate of 
success is very low considering the DOE claim of reflecting its 100 
most successful technologies.
---------------------------------------------------------------------------
    \3\ Office of Energy Efficiency and Renewable Energy, Office of 
Industrial Technologies: Summary of Program Results, U.S. Department of 
Energy, Washington, DC, DOE/EE-0184.
---------------------------------------------------------------------------
    In pursuing some DOE technologies that looked promising, I 
contacted an engineer in a private firm that was participating in a DOE 
program. The engineer stated that DOE's fixation on energy efficiency 
is inconsistent with the business objective of increasing overall 
productivity and reducing average cost. Consequently, the DOE objective 
of increasing energy efficiency reduces the probability of a commercial 
success. The technology that I eventually found to support the 
litigation case was developed by the Gas Technology Institute. GTI 
focuses on developing technologies that will be a commercial success, 
because this success is critical to retaining funding.
    While at Argonne National Laboratory I undertook a study of six 
large and energy intensive industries in the U.S. The report is known 
as the Argonne six industry study.\4\ The study was based on the first-
hand expertise of industry experts. The six industries include the iron 
and steel industry as well as the aluminum industry. Although the 
purpose of that study was to provide information about the impact of 
the Kyoto Protocol, some results are important for current legislation. 
General findings about the six energy intensive industries are as 
follows:\5\
---------------------------------------------------------------------------
    \4\ Ronald J. Sutherland, ``The Impact of Potential Climate Change 
Commitments on Six Industries in the United States,'' Energy Policy, 
Vol. 26, No. 10, 1998, pp. 765-776.
    \5\ Ronald J. Sutherland, Nolan Richards, Michael Nisbet, Dan 
Steinmeyer, Ronald Slinn, Martin Tallett and Richard Fruehan, The 
Impact of High Energy Price Scenarios on Energy-Intensive Sectors: 
Perspectives from Industry Workshops, Argonne National Laboratory, 
Washington, DC, July 1997.

          The U.S. industries are losing competitiveness in 
---------------------------------------------------------------------------
        world markets;

          U.S. plants are maintaining competitiveness in 
        domestic markets;

          Domestic employment is declining continuously over 
        time;

          Labor productivity is continuously increasing;

          No new ``greenfield'' plants will likely be 
        constructed; and

          Increased productivity results from capital 
        investments in existing plants.

    The Argonne study notes that the domestic steel industry has 
experienced a significant reduction in energy intensity since the 
1980s. The industry capital investments have reduced ``yield losses,'' 
which in turn improve capital, labor and energy productivity. Improved 
productivity and cost reduction was the industry objective; energy 
efficiency was merely a by-product.
    The last two findings are crucial to the legislation currently 
being considered. If a successful commercialization of a DOE sponsored 
technology requires a new plant, this plant is likely to be constructed 
in a foreign country. In this case, U.S. taxpayers would directly 
subsidize, and contribute to, job losses in the United States. The 
proposed legislation should be carefully crafted so as not to 
contribute to domestic job losses.
    The taxpayers in the U.S. would probably obtain the greatest 
benefit if federal funding for energy conservation R&D programs were 
simply terminated.\6\ However, if Congress continues with these 
programs, I offer the following suggestions:
---------------------------------------------------------------------------
    \6\ Ronald J. Sutherland and Jerry Taylor, ``Time to Overhaul 
Federal Energy R&D,'' Policy Analysis, The Cato Institute, No. 424, 
February 7, 2002.

        1.  Taxpayers should be assured that most of the economic 
        benefits from these DOE programs accrue in the U.S. These 
        benefits must be in the form of improved productivity, reduced 
        costs, or reduced emissions of plants located in the U.S. Such 
        plants provide jobs to American labor and contribute to the 
        domestic economy. The proposed legislation uses the term 
        ``domestic companies.'' This term is not sufficient to ensure 
        that most of the benefit accrues within the U.S.
              The proposed legislation states that a purpose of the 
        statute is ``. . .to develop advanced technologies.. . .'' My 
        concern is that advanced technologies and processes are most 
        feasible in new ``greenfield'' plants. As the Argonne study 
        concludes, productivity in energy intensive U.S. industries is 
        increased by retrofitting existing plants, not by constructing 
        new plants in the U.S. The proposed legislation should be 
        crafted more carefully to ensure that technology successes 
        improve the productivity of existing domestic plants. The OIT 
        report provides no recognition of the need to focus on 
        retrofitting technologies, nor to focus on technologies that 
        provide domestic benefits.

        2.  The DOE policy goals should be specified so as to produce 
        benefits to taxpayers resulting from long-term market success. 
        The OIT report that describes 100 technology successes boasts 
        of the amount of energy saved by its various efforts. Merely 
        reducing Btu provides no benefit to taxpayers, or to the 
        industrial sector. The rationale for taxpayer support for these 
        DOE investments is that taxpayers share in the initial invest 
        costs, but obtain benefits by long-term commercial success and 
        long-term environmental improvement. As indicated in the OIT 
        report, the DOE does not adequately specify the long-term 
        business objective of improving overall productivity, reducing 
        production costs, or increasing market share.

        3.  The net benefits to taxpayers from these DOE investments 
        could increase if the DOE program were subject to a higher 
        level of accountability. I suggest that proposed legislation be 
        revised to require the DOE to obtain an independent analysis of 
        the economic benefits of its investments. The outside review 
        must be conducted by independent experts, and not by national 
        labs or other financial beneficiaries of the DOE program. 
        Further, the review should be consistent with basic economic 
        principles of cost benefit analysis. The independent analysis 
        would include suggestions for improving the DOE investment 
        process.

    This concludes my prepared statement. Thank you.

                   Biography for Ronald J. Sutherland
    Ron Sutherland is a Ph.D. economist with more than 20 years 
experience analyzing energy issues, including electricity and natural 
gas markets. Ron began his professional career as an economics 
professor with the University of Illinois, Springfield, teaching 
graduate level courses in micro-economics and econometrics. Much of 
Ron's experience is with two DOE national laboratories: Los Alamos 
National Laboratory and Argonne National Laboratory, where he assessed 
several regulatory, environmental and energy policy issues. Ron wrote 
several articles for Energy Policy and The Energy Journal on utility 
deregulation, energy conservation (DSM) programs and long-term 
contracts. Ron was also a senior economist for the American Petroleum 
Institute (API). While with API, Ron produced reports and articles on 
the economics of climate change and energy subsidies.
    At present Ron is an independent consulting economist and Adjunct 
Professor of Law at the George Mason University, School of Law. Ron 
provides economic expertise on a variety of energy related issues, but 
focuses mostly on electricity and natural gas regulatory and 
restructuring issues. As a Center Scholar for the Center for the 
Advancement for Energy Markets, Ron wrote a paper ``The Role of Default 
Provider in Restructuring Energy Markets,'' and has just completed 
``Estimating the Benefits from Restructuring Electricity Markets: An 
Application of the PJM Region.''

                               Discussion

    Chairwoman Biggert. Thank you very much, Dr. Sutherland.
    We will now turn to questions, and I will yield myself five 
minutes.
    Mr. Shulkosky and Ms. Roudabush, is that right? Yes. Thank 
you. Dr. Sutherland has just suggested that the Metals program 
does not necessarily benefit just the U.S. industry. Would you 
concur with that?
    Ms. Roudabush. There are provisions in the program that the 
supporters of the projects initially get the royalty-free 
benefit and a five-year, I believe, head start, if you will, 
before commercialization is available globally. So I do believe 
we do get the benefits of this in our domestic steel industry.
    Mr. Shulkosky. Yeah, I would just have to agree with Ms. 
Roudabush that I am a commercial licensee of a technology, the 
Hot Strip Mill Model. That technology was actually finished up 
in 1998, and the participating companies have had full access 
to the research and used it extensively in their own plans, 
royalty-free. And just last year, we started to commercialize 
it, so it does benefit the participants for a while.
    Chairwoman Biggert. It does benefit only the U.S. industry? 
There is no other benefit to anybody?
    Mr. Shulkosky. It--well, the----
    Ms. Roudabush. Some of the--some of that would be patented. 
Some of it is going to be intellectual property. You know, 
intellectual property is as good as you can keep it. We are in 
a global business. We won't doubt that. And information gets 
around and advances will get around. We are trying to just be 
able to have some amount of leeway to produce this stuff 
domestically, at least for the five-year period.
    Chairwoman Biggert. Okay. And then another part of his 
testimony he says that the U.S. industries, the energy-
intensive--such as the metals industries, will not be 
constructing new plants in the United States. Do you agree with 
that?
    Ms. Roudabush. No, we construct new plants, or at least new 
portions of plants. You know, plants are very large, but we may 
add brand new galvanizing lines, brand new EAFs. The mini-
mills, I would think, would not agree with the fact that they 
have produced--or built new plants with new technologies. If--
would we build another Gerry Works? Probably not. Would we 
build another Gerry Works Hotside? That could be a potential. 
We may not build a brand--you know, there have been 15 new 
steel plants built between 1989 and 2002, and again, I believe 
that you see that we have put new ``greenfield'' sites, or 
portions or portions of our operations have been built.
    Chairwoman Biggert. Well, I guess that the statement that 
Dr. Sutherland was making, and correct me if I am wrong, Dr. 
Sutherland, was that companies would be building plants in 
foreign countries. Is that what you meant?
    Dr. Sutherland. The statement came from this Argonne Six 
Industry study where we brought together several teams of 
experts in all of these six industries, and this was the 
general result that emerged is that there are, in very few of 
these industries, no new ``greenfield'' plants. There are no 
new cement plants, no new aluminum plants, from what I was told 
by the experts. And instead, there are tremendous improvements 
in productivity, but they are in existing plants. And so the 
point is intended to be a positive contribution to this 
Committee, and it is that DOE should focus on technologies that 
need to be integrated in existing plants. And if they require a 
new plant, then we are likely to see the benefits go. That is 
the international free rider problem that characterizes R&D and 
can't be stopped.
    Chairwoman Biggert. Would you agree with that, Mr. 
Shulkosky?
    Mr. Shulkosky. I would say that, you know, the--new plants 
are built in the States. I don't know about internationally new 
plants being built, but as Ms. Roudabush said, there were a lot 
of new plants built in the '90s. And I am aware, being on the 
supplier side, that there is a new facility being talked about 
down south. And also as Ms. Roudabush pointed out, there are 
processing lines being talked about and being picked up. So I 
still see construction occurring in the United States.
    Chairwoman Biggert. Okay. Then, Mr. Faulkner, Ms. 
Roudabush's testimony suggests that the metals program is the 
only federal program that cites competitive advantage as a 
goal. Are you aware of any other program at DOE that includes 
competitive advantage as a goal?
    Mr. Faulkner. I am not aware of any other program at DOE 
that works specifically with the steel industry. I am not sure 
I understand exactly what you are driving at, though.
    Chairwoman Biggert. Well, I just wondered--you know, 
usually a program will have the mission and the goals, and this 
certainly is one that will improve the competitive advantage of 
the United States in businesses. And does DOE usually have 
programs that have that as a goal?
    Mr. Faulkner. Well, Congress has basically given us our 
goals and our missions and functions. And on the--in the energy 
efficiency side of my office, it is reduce energy use. That is 
the basic mission of our office. And I think that when you do 
that, when you help--when you reduce energy use, that will 
reduce costs to the company. I think that is a derivative of 
the mission that we have in our office that will help increase 
the competitive advantage of those companies.
    Chairwoman Biggert. Okay. All right. My time has expired.
    I will yield to the Ranking Member, Mr. Larson, for five 
minutes.
    Mr. Larson. Thank you very much, Madame Chair.
    And let me continue along your excellent line of 
questioning. And let me thank Dr. Sutherland. I think that you 
made a very provocative point to your testimony. But in my 
remarks, I talked about the value added that I think industry 
brings. And in any of your modeling, and in looking at the 
Argonne six or whatever, was the value-added aspect, was the 
national security aspects, were the health and safety and well-
being aspects featured in any of those modelings, or are they 
just pure economic models where the social consequences of 
actions taken by Congress don't come into play?
    Dr. Sutherland. We did not use mathematical modeling or 
econometric modeling. What we brought together were teams of 
industry experts with firsthand expertise in the industry and 
tried to form a consensus of their opinions. So we did not use 
modeling.
    Mr. Larson. What is the most important factor in terms of 
industry development? Is it the cost of labor?
    Dr. Sutherland. It is the bottom line. It is the bottom 
line and how you can get to the bottom line. Improve overall 
productivity and reducing average costs.
    Mr. Larson. And in terms of getting to the bottom line, 
what is the most significant part of that?
    Dr. Sutherland. I think it is capital investments that 
improve the overall productivity of labor.
    Mr. Larson. Right.
    Dr. Sutherland. And as a----
    Mr. Larson. Okay. So if we have a system of capital 
investments and we have industries in a competitive global 
economy that are being subsidized by other countries, how, in 
fact, do we compete if--so then doesn't labor become the 
ultimate issue here? And so if industry is going to seek the 
bottom line, won't they always go overseas, then, if the 
salient factor of achieving the bottom line becomes the lower 
cost of labor that you can get from the lack of a wage?
    Dr. Sutherland. No, I think it is----
    Mr. Larson. And how will investors invest if--that is based 
on quarterly returns from the stock market where people are 
held to a different standard over here in our country in terms 
of return on their investment? So it seems to me that, and 
maybe I am wrong, without government investment, without 
government focusing on R&D, that our companies will be forever 
at a disadvantage, or in fact, other nations that look how to 
defeat the United States use our own system in a form of 
economic jujitsu to throw us with the very success of what we 
do in terms of capital formation by offsetting core industry 
investments themselves and thereby subsidizing their industries 
at the expense and loss of Americans.
    Dr. Sutherland. My belief is that the best way to develop 
policy is probably to ignore what other countries are doing, 
even if they are subsidizing. If we looked, for example, at the 
French economy and observed they were subsidizing the steel 
industry and we observed their low rate of economic growth, 
what would we conclude? We should subsidize the industry or we 
should not subsidize the industry?
    Mr. Larson. There are core industries that--I don't suggest 
that we should subsidize industry in general, but aren't there 
core industries, when you were looking at the six--is, for 
example, the industries that we are discussing today, are--do 
they represent core industries for the United States that would 
require us, A, from a national security perspective, i.e., the 
need for steel and aluminum in terms of a number of the 
products that we produce, and B, also from a number of the 
social consequences that are intended with those?
    Dr. Sutherland. I am sorry, but I think the honest answer 
is no, but I believe there are two very powerful conceptual 
reasons for supporting this legislation that haven't been 
mentioned. These are not industries that have a future of 
extinction. They are industries that have long-term promise of 
survival. They are not rapidly growing industries, but they are 
growing at a very stable rate, and they are surviving. So at 
least, if you support these industries, you are not throwing 
good money after bad.
    A second important point that came out of the Argonne study 
is that many of these industries have plants that are located 
in mid-sized and small towns, and so when a plant closes, first 
we see some labor unemployed, but more to the point, we see the 
entire community affected, because that plant was the economic 
base of the community. And we see lost value of houses. The 
economic consequences are much greater than merely the 
unemployment statistic that shows up in the nightly news. So I 
think there are two good conceptual reasons for supporting 
these industries, and I don't oppose that. But what I do oppose 
is the DOE policy focus explicitly on energy efficiency. If 
you----
    Mr. Larson. And that was a very good point you made, I 
thought, and one that is often lost on trying to discern 
between efficiency and efficient use of energy. It is a very 
good point. Also, I would like to give you--in your closing 
statement, you ended your--you left out of your testimony, one, 
that you would terminate these programs, number two, the--in 
your closing statement, you also suggest--and I think rather--
and I think a very informative thing that there ought to be 
independent analysis of this.
    Dr. Sutherland. Right.
    Mr. Larson. Now I think that is a very constructive way of 
looking at core industry and where the government decides to 
subsidize. And state legislative bodies have something like 
regulation and review and oversight where that--actually after 
they adopt procedures and regulations, the legislature then 
comes back and reviews the extent and evaluates them. But I 
thought that was a very positive suggestion. I am just 
interested in how you would implement them. You said 
independent analysis. What does that mean?
    Dr. Sutherland. At--that means not having national 
laboratories do a cost-benefit analysis of their own programs, 
someone outside of the financial beneficiary. I was invited to 
comment before the National Academy of Sciences, and the 
Academy is doing a study of DOE's R&D policies and programs and 
trying to improve them. And I reported to the Academy this 
general result. And it should concern you. You can flip through 
this document, or read it rather casually, and what you see is 
technology after technology being commercialized in the early 
'90s, 1993, 1995, and in 1997, one or two units are in 
operation. That is all. And these are DOE's 100 most successful 
technologies. I don't know about the least successful 
technologies. But that is not a record that benefits your 
District or benefits the United States. The DOE needs to have 
better policy goals and more accountability.
    Mr. Larson. I am sure Mr. Faulkner will want to respond.
    Mr. Faulkner. I was hoping you would give me that chance, 
sir. Actually, this is the document, the National Academy of 
Sciences' study from three years ago. They took a retrospective 
look back in time at our technologies in our office, several 
technologies. And right now, the National Academy of Sciences, 
an independent body set up by Congress, is looking at 
prospective benefits of our office. Two technologies in this 
Industrial Technologies program that they looked at were the 
loss foam metal casting and the oxygen fuel glass furnace. But 
overall, they looked at our--as they looked at our portfolio, 
the conclusion was that they saw 20 to 1 in terms of dollars, 
$20 for every dollar that we invest, the government invests, in 
terms of economic benefits. I think that is a pretty good 
ratio. In terms of environmental benefits, they saw it was a 
range of $3 billion to $20 billion, depending on how you 
calculate, you know, clean air and clean water and those kinds 
of things, the economic equivalent. So I do think we do--have 
had an independent body look at our technology, and we are 
continuing to do that. That is--evaluating our programs is a 
major thing for us.
    Mr. Larson. Thank you.
    Chairwoman Biggert. Thank you very much.
    I now recognize Ms. Hart for five minutes. I think Mr. 
Gingrey yielded to you.
    Ms. Hart. Well, that was very kind of Mr. Gingrey. Thank 
you, Madame Chairman.
    Okay. I have several questions, and I think I am going to 
start with Ms. Roudabush. And I thank you for going through the 
specifics of the things that resulted from some of the 
Department of Energy monies and the advancement, obviously, in 
your product and, obviously, the consumers of your product, 
especially the Pacifica, since I drove one all last weekend. 
And it was a great car. And it got fairly decent gas mileage, 
so I was really happy with that, especially now.
    Can you give us some more details about the collaborative 
research, the importance of collaboration within the industry 
and how it is encouraged through this program to your company 
and about your commitment to the program?
    Ms. Roudabush. U.S. Steel has been one of the initial 
funders, of, you know, company funders, from the inception of 
this program. And we certainly do have significant upper level 
management commitment. In fact, I can just relate that in the 
recent CO2 emissions, you know, we were probably the 
first company that actually signed up to opt in on that 
program. And I think it is a testimony to the fact that for 
other manufacturers in our industry, in the past few years, and 
I think you have all heard, about 35 steel companies have gone 
bankrupt, yet we still had enough funding from our industry to 
support these programs. And these programs are funded by the 
steel industry. You know, we jointly fund these. So we are 
going to be selecting programs that we feel will benefit us and 
do have a payback and can be commercially viable for us or that 
are of importance in the future for energy savings for 
environmental initiatives. We do see that other governments 
provide significant amount of funding. I will speak to one that 
I know of. We do some benchmarking. There is a competitive 
global company that supports 20 percent of their R&D staff 
through direct government funding. They have an R&D staff in 
their central R&D of 40 people--or excuse me, 400 people. And 
that equates to, in the current exchange rate, $70 million. 
That is four times my annual budget. So there are things that 
we can not do ourselves and that are--and we are trying to do 
through a collaborative effort that foreign governments are 
funding to the tune of five to ten times what we get funded.
    Ms. Hart. Thanks for that.
    Next question I think I am going to direct to Mr. Faulkner, 
and it is regarding the President's commitment to maintaining a 
strong manufacturing sector in the United States. Do you 
believe this program is a significant part of our plan to 
support the President's commitment to a strong manufacturing 
sector?
    Mr. Faulkner. Sure. I think that this partnership with the 
steel industry, and other industries that we work with in our 
Industrial Technologies Program, is--has clearly shown by time 
that it has benefit to the industry, to the American people. We 
work with a range of industries, industries that use a lot of 
energy. And I think the continued--the continuance of it in our 
budget request reflects the importance we place on it.
    Ms. Hart. Thank you for that.
    Mr. Shulkosky, as an organization that contracts with the 
Department and moves forward with these kinds of programs on a 
project by project basis, first of all, is that something that 
your company basically does from--is that how you do your work? 
You do contract to contract, project to project?
    Mr. Shulkosky. With the government, it is only a portion of 
our work.
    Ms. Hart. Okay.
    Mr. Shulkosky. This collaborative research is only a 
portion of our work.
    Ms. Hart. Okay. And is a significant--is it a significant 
portion? Like, what percentage, would you say, of your work is 
this kind of work?
    Mr. Shulkosky. Well, probably over the last two to three 
years, it has probably been 20 to 30 percent of our work.
    Ms. Hart. Okay. All right. And that having been said, since 
you are involved in so many other things that don't really have 
anything to do with government projects and you are interested 
in, obviously, moving things forward, can you shed some light 
for us on the difficulty of your company from one year to the 
next basically not having the knowledge whether or not this 
type of program is going to be able to continue?
    Mr. Shulkosky. Yeah, it sort of comes on two fronts. When 
you are doing this collaborative research, they have a very 
rigorous process to set it up, so you submit a proposal, and we 
always do things in phases, multiple phases. And the reason to 
do that is two-fold. One is you want checkpoints as you are 
doing the research and so that if you get that far, you can 
move on to the next phase, and if it is not making progress, 
then you would stop it and quit spending money on it. However, 
the downside is when you don't know the budget, you may get to 
the next phase and being--having a success but not being able 
to move on, because there is no funding available. Being a 
small company and 30 percent of my work being related to that 
project, it causes me a second problem that I don't know what 
to do with my staff. I have to reallocate them, hopefully, and 
we never know when we will be able to pick the research back 
up.
    Ms. Hart. That would be tough.
    And that kind of research that you are doing, I mean, you 
guys obviously are doing it, it is really vetted, then--I think 
my colleagues understand, it is really vetted through a pretty 
serious process. It is funded partially by the Federal 
Government, partially by the private sector. And by the time it 
gets to you, it is something that is determined to be extremely 
important to a number of different organizations that are out 
there, you know, working to manufacture products and, 
obviously, improve their processes and do things better. Now I 
lost my train of thought. Oh. Do you--are you able--is there 
another resource that you could go to if this project, this 
particular funding source disappeared? Is there some other 
place or some other opportunity that might have to be able to 
fund the kinds of research that you have been able to obtain 
through the AISI and through this program?
    Mr. Shulkosky. We haven't actually found that. We would--at 
times, have looked at other government programs, such as the 
SBIRD, but those are more DOD type stuff. And the DOE has other 
programs. What we tend to do is if we are running out of money, 
we will try to go back to the steel companies and see if they 
will be able to pick up the other 70 percent, and it hasn't 
been a good climate over the last several years to ask them to 
kick in any more money. So although they are still very 
interested in their research, things come near to a grinding 
halt almost, basically.
    Ms. Hart. Okay. Thank you for that.
    And just, if I may, because I am going a little over time, 
is that all right, Madame Chair? Okay. I am a little hesitant 
to ask this question of Mr. Sutherland--Dr. Sutherland, sorry. 
But if one of our goals--no, when I say are, we are government. 
I am not business, and I am trying to help promote policies 
that will help promote, you know, American economy, 
opportunity, growth, technology, and those kinds of things. 
Everything that I do is not necessarily going to be toward 
making a profit. And in some of the things that you had stated 
in your testimony, it seems to me that it might not be a 
legitimate goal for government to fund these kinds of things if 
they only provide things like energy efficiency or--that--if 
they aren't, in other words, moving someone more immediately 
toward a profit, some bigger profit or some other thing that 
isn't as, I guess, esoteric as some of the things that we would 
be promoting here, because it takes a few steps to get us 
toward where the technology will actually improve 
profitability. Do you follow me?
    Dr. Sutherland. Until that last sentence, I did.
    Ms. Hart. Okay. Then forget that last sentence and go with 
what it was before.
    Dr. Sutherland. Okay. I am not suggesting that government 
only fund technologies that are profitable. Certainly, the 
correct rationale, in terms of economics, for government 
supporting industry, is external benefit, some kind of benefit 
that the industry can't capture itself. For example, suppose 
industry is required to meet and environmental regulation. I 
think it is hard to justify government subsidizing the industry 
to meet that regulation, but suppose there is a new technology 
that would not only meet that regulation but exceed it and 
reduce emissions way over and above that required by law. That 
incremental reduction in emissions is a benefit to taxpayers, 
but industry has no incentive to pursue that technology, 
particularly if it is more expensive. But government could well 
invest taxpayer money in achieving that higher level of 
environmental quality than required by law. Do you see what I 
mean? That is an external benefit to taxpayers, and that is 
where government should focus its R&D money.
    Chairwoman Biggert. The gentlelady's time has expired.
    Ms. Hart. Thank you, Dr. Sutherland. Thank you, Madame 
Chair.
    Chairwoman Biggert. Mr. Gingrey is recognized for five 
minutes.
    Mr. Gingrey. Thank you, Madame Chairman.
    And I would like to thank the staff for assembling this 
panel. This is a good way to start the day. I am really 
enjoying this, and that is not a political statement, but we, 
on the left, we have Mr. Faulkner, and on the right, we have 
Dr. Sutherland. And I think that if everybody is listening, you 
would say that these might be slightly extreme views. And I--
clearly, I would think, from what I have heard, that Mr. 
Faulkner and also Mr. Shulkosky and Ms. Roudabush are probably 
in favor of this bill and see a lot of good in it. And I would 
think it is fair to say, from what I have heard, that Dr. 
Sutherland, on the other hand, would say that it stinks and it 
doesn't pass the smell test.
    So what I would like to do is start on the left and have 
Mr. Faulkner comment on it and then go over to the right. And 
as Bill O'Reilly says, ``What say you, Dr. Sutherland,'' in how 
you opine on this, as you already have? But let me just ask a 
couple of specific questions, because obviously there is a 
significant difference of opinion here among the four experts 
who are testifying.
    Mr. Faulkner, taxpayers have put millions of dollars in the 
past 15 to 20 years into the Department of Energy's R&D 
programs to improve energy efficiency, particularly in the 
steel and aluminum industries, and that is basically what we 
are talking about in this bill. What has been the total 
taxpayer cost to date, if you can give us those figures? If 
not, if you can submit them to us, I would appreciate it. What 
are the major public benefits that the program has produced? 
Ranking Member, Mr. Larson, I think, eluded to that question 
earlier in his line of inquiry. What are the expected future 
benefits of further taxpayer investment? How exactly does the 
DOE calculate those benefits, both retrospectively and 
prospectively?
    Mr. Faulkner. Sir, from where I sit, I am on the right side 
of this table. Mr. Sutherland is on the left.
    Mr. Gingrey. I knew you were going to say that.
    Mr. Faulkner. I couldn't let that go without comment, most 
of all.
    You asked several questions, sir. We calculate that the--by 
appropriations, by as-year appropriations, there have been 
roughly a little over $240 million of taxpayer dollars 
appropriated to our office for steel and aluminum research. 
That is--if it would be broken down, steel is over aluminum by 
a little bit more. We had to do some estimating in the early 
years. That goes from '86 through 2004. Steel is about a little 
over $76 million. Aluminum, a little over $65 million. Those 
numbers differ a little bit from what the numbers your staff 
developed, and we could go into that later for the record.
    You asked me about public benefits. The steel team has--the 
technologies that they have worked on with the steel industry, 
there have been about 15 steel industry technologies 
commercialized in the aluminum side. There have been roughly 
ten technologies commercialized. In the earlier years, the 
research was focused more on incremental progress--incremental 
process change. And as I mentioned in my testimony, we are now 
focusing on what we call ``Grand Challenge'' technologies, 
where we can pull our money more--and our portfolio more to 
longer-term, higher-risk research. The--by 2020, we think the 
potential energy savings to the industry from revolutionary 
iron-making alone could exceed 100 trillion Btu's and maybe 
$300 million annually with large reductions and emissions of 
harmful pollutants. On the aluminum, we are looking at several 
alternatives to the current method of producing aluminum and 
electrolytic cells. By 2020, it is anticipated that DOE-
sponsored technologies could save between 100 and 150 trillion 
Btu's of energy, worth more than half a billion dollars. I 
mentioned earlier, in response to Congressman Larson, a study 
done by the National Academy of Sciences. I won't go into 
those--repeat those details again, but they look backward over 
time and gave us their assessment that there has been a pretty 
hefty return on taxpayer dollars, and they are working with us 
to look at how we calculate prospective benefits. That is a 
little bit harder. We could talk some more about the details of 
that, if you wish.
    Mr. Gingrey. Dr. Sutherland, I don't have much time left, 
but I will give you the last word.
    Dr. Sutherland. Suppose that an industry has a list of ten 
potential technologies, and the industry ranks these 
technologies according to expected benefits measured as long-
term productivity, long-term health of that industry, long-term 
economic viability of that industry. Now suppose there is a 
different ranking by that same industry and it is Btu of energy 
saved. The ranking would be very different. My point is the 
best--the interests of our country are advanced if industry 
invests in the most efficient technologies, the most productive 
technologies, and that ranking is inconsistent with DOE's 
fixation on energy efficiency and merely defining benefits as 
Btu's. That is a waste of resources and a value that we are not 
receiving. And it all stems from DOE's policy objective of 
energy efficiency. That is the main point that I am making.
    Mr. Gingrey. And the two in the middle, I would like your 
comments, too, if you will.
    Ms. Roudabush. Well, first of all, I would like to comment 
that, really, our premise is not just energy efficiency. 
Actually, if we improve our productivity, we do improve our 
energy efficiency. For instance, if you are making a certain 
amount of steel, the demand for steel is pretty constant. If I 
can make steel and improve productivity rates, by nature of 
that, I am reducing my energy consumption, because you know, I 
can make more steel in a shorter amount of time with the same 
amount of energy, or less. So I don't think that the DOE 
funding precludes us improving productivity or other benefits. 
This is not just an energy-reduction program. We look at 
improved productivity, consumer benefits in safety that we have 
seen, in CO2 emissions. It is more significant than 
that. Energy is an important portion, obviously, of our 
business. You said it was an intensive--an energy-intensive 
business, so it is a big cost to our industry. In my company 
alone, a $1 increase in the cost of an MMBtu of natural gas 
costs my company $80 million. So you know, we are very, very 
focused on reducing our energy consumption in our industry. It 
is a big cost, so that improves our productivity, and it 
improves our profitability, and it improves our competitive 
ability.
    Mr. Gingrey. Madame Chair, I see my time is out. Are we 
going to have a second round, or can I just give a short 
follow-up?
    Chairwoman Biggert. Why don't you have a short follow-up?
    Mr. Gingrey. Thank you, Madame Chairman.
    And I think it was stated by one of you that two percent of 
all energy consumption in the United States is from the steel 
production industry. I mean, that is a mega amount. And as 
Dr.--Ms. Roudabush said, if you can use some research and 
development dollars provided by, yes, the taxpayer through DOE 
R&D to help these companies find a way to produce steel or one 
of these other metals more efficiently, the main way to do 
that, or a cost-effective way, is to reduce the dependence and 
the amount of consumption of energy. I mean, I have been to 
steel mills, and they will tell you that every time. And I know 
in my state of Georgia, Atlantic Steel was a great company for 
many years, and now they are history, because they were just 
doing it the same old way. And Dr. Sutherland, you said 
something, I think, you might want to comment on this, and I 
know I have overused my time, but what is wrong for once to see 
a government mandate in regard to environmental and everything 
else that is funded our companies, particularly our 
manufacturing companies are burdened so much with unfunded 
mandates. It is not just labor costs that forces jobs 
outsourcing. The old word is the en vogue word during this 
election--the presidential election year, but I mean, hey, this 
is kind of refreshing. For once, we have got a funded mandate.
    Dr. Sutherland. I think you are referring to the point that 
I made that polluters should pay the costs of the pollution 
themselves rather than shift that on to taxpayers. Certainly, 
the economy, overall, is more efficient and healthier and GDP 
is larger if those who impose costs on others, in the form of 
pollution, are forced to pay them themselves rather than just 
shift the cost on to taxpayers. It is just a matter of economic 
efficiency. So perhaps we disagree on this point, but it has 
always been the case that Congress regulates and sets 
environmental standards, along with the EPA, and the polluters 
have to meet those standards.
    Chairwoman Biggert. Thank you.
    Let me just say that, you know, the purpose of this Science 
Committee, and I think particularly this Subcommittee in the 
area of energy, is really--has always been research and 
development. And that, I think, is so important to what the 
Department of Energy does. And the basic research of the 
physical sciences so that we are able to provide help to 
industry to help whatever. And in fact, I think that this 
Committee has taken on the charge to try and convince other 
Members of Congress how important research and development is. 
And I think the way that we have been able to reach some of the 
Members of Congress is really to show them that the economy 
really depends on it, and the--and jobs. And once they see 
that, they realize how you start with a, you know, very basic 
idea probably that industry could not afford to develop and 
then it moves up to applied science, and then it gets to the 
commercialization where the industries come in. And it is all, 
I think, working together for the economy of the country as 
well as our national security. And that is the other issue that 
comes in here so strongly. And I noted that Dr. Faulkner, in 
his testimony, said that DOE and its partners have jointly 
commercialized about 15 technologies and have disseminated 
valuable scientific information that will help steel-makers 
improve their productivity efficiency and product quality. And 
I don't think that there really is a difference between 
productivity and efficiency or there is--they are not working 
against each other, but working together. And I think Dr.--or 
Ms. Roudabush, you brought that up. And I think that is very 
important to keep in mind that we really need to safeguard our 
energy and our capabilities in that field as well as--but to be 
able to develop the products, and I think, even ending up, 
then, with the value added of a community that--how they--you 
know, they benefit when there is that industry there. And I 
think, Dr. Sutherland, you mentioned that.
    So I think we are all working together, it just seems like 
we can't just say, oh, the--energy efficiency is not the only 
goal that we have, but is one of many to conserve our energy 
but also to be able to take this scientific--the research and 
development and to be able to use it most effectively, which, 
to me, is efficiency, too, when we are able to commercialize 
these products and develop a better quality of life for all 
Americans. And I think that this is the charge, I think, that 
we have here to ensure in that.
    And with that, I would thank you all for coming. And let me 
say that if Members have written questions, that they may 
submit to you and hopefully that you will respond to those. And 
again, thank you for being a great panel and being here, and 
sorry to keep you waiting a few minutes when we got started.
    And with that, the Subcommittee is adjourned. Thank you.
    [Whereupon, at 11:20 a.m., the Subcommittee was adjourned.]

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