[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                       SHOULD CONGRESS ESTABLISH
                   ``ARPA-E,'' THE ADVANCED RESEARCH
                        PROJECTS AGENCY-ENERGY?

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

                                HEARING

                               BEFORE THE

                          COMMITTEE ON SCIENCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 9, 2006

                               __________

                           Serial No. 109-39

                               __________

            Printed for the use of the Committee on Science


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




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                          COMMITTEE ON SCIENCE

             HON. SHERWOOD L. BOEHLERT, New York, Chairman
RALPH M. HALL, Texas                 BART GORDON, Tennessee
LAMAR S. SMITH, Texas                JERRY F. COSTELLO, Illinois
CURT WELDON, Pennsylvania            EDDIE BERNICE JOHNSON, Texas
DANA ROHRABACHER, California         LYNN C. WOOLSEY, California
KEN CALVERT, California              DARLENE HOOLEY, Oregon
ROSCOE G. BARTLETT, Maryland         MARK UDALL, Colorado
VERNON J. EHLERS, Michigan           DAVID WU, Oregon
GIL GUTKNECHT, Minnesota             MICHAEL M. HONDA, California
FRANK D. LUCAS, Oklahoma             BRAD MILLER, North Carolina
JUDY BIGGERT, Illinois               LINCOLN DAVIS, Tennessee
WAYNE T. GILCHREST, Maryland         DANIEL LIPINSKI, Illinois
W. TODD AKIN, Missouri               SHEILA JACKSON LEE, Texas
TIMOTHY V. JOHNSON, Illinois         BRAD SHERMAN, California
J. RANDY FORBES, Virginia            BRIAN BAIRD, Washington
JO BONNER, Alabama                   JIM MATHESON, Utah
TOM FEENEY, Florida                  JIM COSTA, California
BOB INGLIS, South Carolina           AL GREEN, Texas
DAVE G. REICHERT, Washington         CHARLIE MELANCON, Louisiana
MICHAEL E. SODREL, Indiana           DENNIS MOORE, Kansas
JOHN J.H. ``JOE'' SCHWARZ, Michigan  VACANCY
MICHAEL T. MCCAUL, Texas
VACANCY
VACANCY
                            C O N T E N T S

                             March 9, 2006

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

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

                           Opening Statements

Statement by Representative Sherwood L. Boehlert, Chairman, 
  Committee on Science, U.S. House of Representatives............    16
    Written Statement............................................    17

Statement by Representative Bart Gordon, Minority Ranking Member, 
  Committee on Science, U.S. House of Representatives............    18
    Written Statement............................................    20

Statement by Representative Judy Biggert, Chairman, Subcommittee 
  on Energy, Committee on Science, U.S. House of Representatives.    22
    Written Statement............................................    24

Prepared Statement by Representative Jerry F. Costello, Member, 
  Committee on Science, U.S. House of Representatives............    26

Prepared Statement by Representative Eddie Bernice Johnson, 
  Member, Committee on Science, U.S. House of Representatives....    26

Prepared Statement by Representative Michael M. Honda, Minority 
  Ranking Member, Subcommittee on Energy, Committee on Science, 
  U.S. House of Representatives..................................    27

Prepared Statement by Representative Sheila Jackson Lee, Member, 
  Committee on Science, U.S. House of Representatives............    27

                               Witnesses:

Dr. Steven Chu, Director, Lawrence Berkeley National Laboratory
    Oral Statement...............................................    28
    Written Statement............................................    31
    Biography....................................................    36

Dr. David C. Mowery, William A. & Betty H. Hasler Professor of 
  New Enterprise Development, Haas School of Business, University 
  of California at Berkeley
    Oral Statement...............................................    37
    Written Statement............................................    39
    Biography....................................................    42

Ms. Melanie Kenderdine, Vice President, Washington Operations, 
  Gas Technology Institute
    Oral Statement...............................................    43
    Written Statement............................................    46
    Biography....................................................    51

Dr. Frank L. Fernandez, President, F.L. Fernandez, Inc.
    Oral Statement...............................................    52
    Written Statement............................................    54
    Biography....................................................    58

Dr. Catherine Cotell, Vice President for Strategy, University and 
  Early Stage Investment, In-Q-Tel
    Oral Statement...............................................    59
    Written Statement............................................    61
    Biography....................................................    66
    Financial Disclosure.........................................    67

Discussion.......................................................    68

              Appendix: Answers to Post-Hearing Questions

Dr. Steven Chu, Director, Lawrence Berkeley National Laboratory..    86

Dr. David C. Mowery, William A. & Betty H. Hasler Professor of 
  New Enterprise Development, Haas School of Business, University 
  of California at Berkeley......................................    90

Ms. Melanie Kenderdine, Vice President, Washington Operations, 
  Gas Technology Institute.......................................    92

Dr. Frank L. Fernandez, President, F.L. Fernandez, Inc...........    96

Dr. Catherine Cotell, Vice President for Strategy, University and 
  Early Stage Investment, In-Q-Tel...............................   100


 SHOULD CONGRESS ESTABLISH ``ARPA-E,'' THE ADVANCED RESEARCH PROJECTS 
                             AGENCY-ENERGY?

                              ----------                              


                        THURSDAY, MARCH 9, 2006

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

    The Committee met, pursuant to call, at 10:00 a.m., in Room 
2318 of the Rayburn House Office Building, Hon. Sherwood L. 
Boehlert [Chairman of the Committee] presiding.


                            hearing charter

                          COMMITTEE ON SCIENCE

                     U.S. HOUSE OF REPRESENTATIVES

                       Should Congress Establish

                   ``ARPA-E,'' the Advanced Research

                        Projects Agency-Energy?

                        thursday, march 9, 2006
                         10:00 a.m.-12:00 p.m.
                   2318 rayburn house office building

1. Purpose

    On Thursday, March 9, 2006, the House Committee on Science will 
hold a hearing on whether Congress should establish an Advanced 
Research Projects Agency in the Department of Energy, or an ARPA-E.
    The National Academy of Sciences, in its report last fall on 
enhancing American competitiveness, Rising Above the Gathering Storm, 
recommended the creation of an ARPA-E to fund ``transformational 
research that could lead to new ways of fueling the Nation and its 
economy,'' and different bills have been introduced in the House and 
Senate to implement the recommendation.
    Critics of the proposal have raised a variety of issues, including 
that an ARPA-E may not address the actual barriers to new energy 
technology; that it is based on a research agency model that does not 
apply well to energy; that different proponents of ARPA-E describe 
different missions for it; that it would compete with, or get swallowed 
up by existing energy research programs; and that it is unclear how it 
would be distinct from other energy research programs.
    The hearing is intended to help Congress analyze the arguments for 
and against an ARPA-E, to consider alternative approaches, and to 
determine how to structure an ARPA-E if it were created.

2. Witnesses

Dr. Steven Chu is Director of Lawrence Berkeley National Laboratory. He 
served on the NAS panel\1\ that recommended establishing ARPA-E. He was 
a co-winner of the 1997 Nobel Prize in Physics.
---------------------------------------------------------------------------
    \1\ Committee on Prospering in the Global Economy of the 21st 
Century: An Agenda for American Science and Technology which produced 
the October 2005 NAS report Rising Above the Gathering Storm: 
Energizing and Employing America for a Brighter Economic Future, The 
National Academies Press, Washington, DC (2005).

Dr. Catherine Cotell is Vice President for Strategy, University and 
Early Stage Investment at In-Q-Tel. The Central Intelligence Agency 
established In-Q-Tel in 1999 to gain access to new technologies 
---------------------------------------------------------------------------
emerging from small startup companies.

Dr. Fernando L. Fernandez is President of F.L. Fernandez, Inc., a 
consulting firm with clients in research and development. He served as 
Director of the Defense Advanced Research Projects Agency (DARPA) from 
1998 to 2001.

Ms. Melanie Kenderdine is Vice President, Washington Operations, for 
the Gas Technology Institute. She served as Director of the Office of 
Policy in the Department of Energy from 1999 to 2000.

Dr. David Mowery is the William A. & Betty H. Hasler Professor of New 
Enterprise Development at the Haas School of Business, University of 
California at Berkeley. He is an expert in technological change, 
international trade, and U.S. technology policy.

3. Overarching Questions

          What problems within the energy research enterprise 
        is ARPA-E intended to address? Is ARPA-E the best mechanism to 
        address these problems? If not, what alternatives might be more 
        successful?

          If Congress were to create an ARPA-E, how should the 
        agency operate, where in the Department of Energy (DOE) should 
        it be located, and how should it interact with existing aspects 
        of DOE, including the National Laboratories?

4. Brief Overview

    The October 2005 NAS report, Rising Above the Gathering Storm: 
Energizing and Employing America for a Brighter Economic Future (also 
known as the Augustine Report for its chair, retired Lockheed Martin 
CEO Norman Augustine), recommended creating an ARPA-E within DOE to 
fund ``transformational research that could lead to new ways of fueling 
the Nation and its economy.'' The report offered recommendations in 
four areas to enhance U.S. competitiveness: K-12 education, higher 
education, economic and technology policy, and scientific research.
    The Augustine report argued that affordable and reliable energy 
production is central to the future of the American economy and that 
revolutionary new technologies are needed for a sustainable energy 
future. The report argued further that no existing DOE programs were 
well suited to promote such technological advances and get them into 
the marketplace. What was needed, the report concluded was a DOE unit 
modeled on the Defense Advanced Research Projects Agency (DARPA), the 
agency that is widely credited with the development of the Internet. 
The Augustine report said ARPA-E:

         would sponsor creative, out-of-the-box, transformational, 
        generic energy research in those areas where industry by itself 
        cannot or will not undertake such sponsorship, where risks and 
        potential payoffs are high, and where success could provide 
        dramatic benefits for the Nation. ARPA-E would accelerate the 
        process by which research is transformed to address economic, 
        environmental, and security issues. It would be designed as a 
        lean, effective, and agile--but largely independent--
        organization that can start and stop targeted programs based on 
        performance and ultimate relevance.

    Citing the Augustine report, the President has proposed increased 
funding for three research and development (R&D) agencies and for 
several science and math education programs. The Administration has not 
endorsed the ARPA-E proposal and has expressed concern that its funding 
could compete with higher priorities, including proposed increases for 
DOE's Office of Science. Energy Secretary Samuel Bodman has suggested 
that an entity based on In-Q-Tel, a venture capital organization 
sponsored by the Central Intelligence Agency (CIA), might be a more 
appropriate approach to getting new technology into the energy market. 
(More on that below.)

5. Issues

    The arguments for ARPA-E are laid out in the Augustine report 
(excerpt attached). This section summarizes the arguments of critics.

Why aren't more revolutionary technologies finding their way into the 
energy market, and is ARPA-E an effective approach to solving that 
problem? This is really two questions: First, is the problem in the 
energy markets primarily one to be solved by increasing the supply of 
energy technologies or by creating more demand for energy technologies? 
And second, if the problem is the supply of technologies, would ARPA-E 
be the most effective way to spawn new technologies and get them into 
the marketplace?

Is the problem primarily one of technology supply or demand? While 
there is no question that R&D is necessary to supply new technologies 
to the marketplace, some critics of the ARPA-E proposal argue that the 
U.S. energy marketplace is not short of ideas or technologies, but that 
the current market structure does not generate demand for new 
technologies. For example, an NAS study several years ago identified 
numerous existing technologies that could increase automobile fuel 
mileage that were not being applied or applied for that purpose. Even 
today, oil prices are generally at a level that does not induce 
consumers to switch to new energy technologies. Without government 
incentives, whether through taxes, regulations or other means, the 
market will not create a sufficient demand for new technologies, these 
critics argue. They point out that while there are societal reasons to 
seek new energy technologies, those do not translate into individual 
demands with oil at current prices. Under this reasoning, new 
technologies funded by an ARPA-E are no more likely to find their way 
into the marketplace than are existing ideas.

What is the primary barrier to technology supply and would ARPA-E 
address it? But even if one assumes that technology supply is part of 
the problem, ARPA-E, may not be the most effective tool to get more new 
technologies into the marketplace, critics argue. According to the 
Augustine report, ARPA-E would fund ``a broad portfolio of foundational 
research that is needed to invent transforming technologies that in the 
past were often supplied by our great industrial laboratories.'' This 
assumes that a primary gap in energy technology creation is a lack of 
early-stage, largely basic research and that the government would be 
able to determine what kind of research in that area is most needed. 
But many advocates of a greater government role in energy technology 
see the primary barrier not at the early stages of research, but later 
in the process when the inventors of new technologies find that they do 
not have the wherewithal to fully develop their ideas into products or 
to bring their ideas to market. Some advocates of ARPA-E who were not 
on the Academy panel argue that ARPA-E could address this stage of the 
problem, but that is not what the Academy has argued. Critics argue 
that if the goal is to work on the later stages of development and 
product introduction, then an ARPA-E is the wrong tool to use.

Does the DARPA model match the needs of energy R&D? Proponents of new 
government efforts to get R&D into the marketplace often turn to DARPA 
as a model. For example, in the competitiveness debates of the 1980s, 
some argued for the creation of a civilian equivalent of DARPA to 
counter Japanese inroads in U.S. technology markets. (This proposal 
contributed to the creation of the Department of Commerce's Advanced 
Technology Program.) In the Homeland Security Act, Congress created a 
Homeland Security Advanced Projects Agency (HSARPA) to help create new 
technologies to counter terrorism. HSARPA is not generally viewed as a 
success, partly because it has focused primarily on short-term 
development projects.
    The appeal of the DARPA model is clear. DARPA has had an enviable 
record of success in funding technologies that have given the U.S. 
military a technology edge, many of which have eventually made it into 
the marketplace. Experts generally attribute the agency's success to 
its relative independence from the military services and their 
laboratories, its ties to industry as well as academia, its relative 
insulation from politics which has enabled the agency in the past to 
undertake long-range projects and tolerate failure, and its internal 
structure which empowers program managers to make decisions on who and 
what to fund. Like the National Science Foundation (NSF), DARPA 
performs no research, but funds research elsewhere. Unlike NSF, DARPA 
works more with industry and does not have peer review of its 
proposals. But DARPA has had its ups and downs and has focused on 
different aspects of technology over its almost 50 years of operation. 
Today, DARPA is focusing more on shorter-range projects of more 
immediate use to the military.
    Critics of the ARPA-E proposal argue that a salient feature of 
DARPA is that it funds the creation of technologies for which the 
government will be the primary or sometimes sole market. This makes it 
easier to determine what technologies to target, helps researchers 
target their own efforts, and assures industry that there will be a 
payoff for its efforts. Moreover, price is not generally a significant 
consideration for technologies developed by DARPA. This is true in the 
area of homeland security, as well. But this fundamental feature of 
DARPA is not true in the energy arena. Critics argue that it is at best 
unclear how a DARPA model would succeed in a field in which the 
government is not a primary customer and does not exert much direct 
control over the marketplace.

What other models exist that could be applied to energy research? 
Another model that has been suggested to push more technology into the 
energy market is In-Q-Tel, a Congressionally created, government-funded 
non-profit venture capital firm that seeks to accelerate market 
introduction of products that could benefit U.S. intelligence efforts. 
In-Q-Tel generally does not get involved in technologies until they are 
well on their way to development or in the prototype stage. Therefore, 
In-Q-Tel would not help attack the problem that the Augustine report 
identified, a lack of early-stage, more fundamental research. But an 
In-Q-Tel model might get more ideas out of the laboratory and into the 
marketplace. However, In-Q-Tel, like DARPA, works in a realm in which 
the government is the market. While In-Q-Tel will only back ventures 
that appear to have a market beyond the government, its primary goal is 
to promote the development of products that the government itself will 
purchase. Also, In-Q-Tel, which was created in 1998 and did not get 
fully underway until later, does not yet have much of a track record 
and no one has analyzed how it might function in the energy market. 
Moreover, the expanding use of government-funded firms that get equity 
in private companies could raise questions about the appropriate 
government role in the financial marketplace.

Why can't existing DOE programs accomplish the goal of an ARPA-E and 
how would an ARPA-E interact with existing programs? Proponents of 
ARPA-E argue, in effect, that the DOE Office of Science programs are 
too basic and that the DOE energy supply programs are too applied, 
leaving a gap. The Office of Science does support fundamental research, 
but most of it is not directed at specific energy problems or 
technologies. (The Office of Science is trying to increase its 
involvement in these areas.) The applied programs tend to fund 
incremental research that is unlikely to lead to ``transformational'' 
advances. DOE also has a more bureaucratic culture than DARPA and lacks 
some of DARPA's more flexible procurement authority.
    Some critics argue that DOE should reform its basic and/or applied 
programs to address any gaps identified by the Academy report. Others 
fear that if an ARPA-E is located in DOE it will be gradually come to 
look like existing DOE programs because otherwise it will compete with 
them for funds. These critics are particularly fearful that ARPA-E will 
simply become another source of funding for the National Laboratories, 
which they see as too removed from the marketplace and too focused on 
their existing portfolios to undertake ``transformational'' research 
targeted at new energy technologies. These critics note that a strength 
of DARPA has been that is has not had its own laboratories and has 
generally worked independently of the military laboratories.

How would an ARPA-E be structured? The Academy panel did not provide 
detailed advice on how to structure ARPA-E, other than to point to the 
DARPA model. In establishing an ARPA-E, Congress would have to decide 
where in DOE to locate it, how to ensure the independent and program 
manager-driven agenda of DARPA, how to provide stable and adequate 
funding and how to clearly describe the kinds of research that ARPA-E 
would be intended to fund. The Augustine report recommends having ARPA-
E report to the DOE Under Secretary for Science (a position created by 
last summer's Energy Policy Act), but critics worry that that would not 
give ARPA-E adequate independence and would increase the likelihood 
that funds would go to the National Laboratories. Some critics argue 
that if Congress were to create an ARPA-E, it should do so outside of 
DOE and perhaps as a free-standing quasi-governmental entity.

6. Additional Background

Augustine Report. The Academy panel did not receive outside advice or 
testimony on the ARPA-E idea and at least one of its members was a 
reluctant supporter of the idea because of concerns that the DARPA 
model did not apply to areas in which the government was not a 
customer. Also, the one member of the Academy panel from the energy 
industry, Lee Raymond, then-Chairman and CEO of the ExxonMobil 
Corporation, dissented from the recommendation, arguing against further 
government involvement in energy markets.

History and Structure of DARPA. DARPA's mission is ``to prevent 
technological surprise to the U.S., but also to create technological 
surprise for our enemies,'' \2\ through radical innovation to further 
national security. While each service branch conducts its own research 
to further known, short-term requirements, DARPA aims to anticipate 
future military needs, in any service branch, and accelerate 
development of breakthrough technology to meet those needs.
---------------------------------------------------------------------------
    \2\ DARPA: Bridging the Gap; Powered by Ideas, Defense Advance 
Research Projects Agency, Feb. 2005, p. 1.
---------------------------------------------------------------------------
    DARPA was created in 1958 as the Advanced Research Projects Agency 
(ARPA), in response to Cold War concerns such as the launch of Sputnik 
Early areas of research involved space and missile defense. By the late 
1970's, the agency focused on defense, emphasizing breakthrough 
technological applications and enhanced links to real customers. ARPA/
DARPA research projects include crucial contributions to development of 
stealth aircraft, unmanned aerial vehicles (UAVs), and the Internet.
    DARPA exists within the Office of the Secretary of Defense, outside 
the service branches. Its director oversees Offices (eight of them at 
present) that bring together experts with similar interests. Within the 
Offices are program managers hired for short stints, typically four to 
six years. Only one layer of management, the Office directors, 
separates the program managers from the director. DARPA upper 
management devise research themes in consultation with defense leaders, 
and together with the program managers, they identify important, 
difficult problems that fit in with those themes. Program managers are 
expected to consult with technical communities throughout government, 
industry, and academia to design projects intended to create novel 
military capabilities. Program managers have special contracting 
authority that allows them to negotiate flexible contracting 
arrangements with researchers. Their projects aim to create usable 
products, and must include plans for transfer of those products to real 
users. The short-term of program managers creates a supply of new 
people with new ideas and encourages accelerated execution of projects. 
DARPA has no laboratories of its own--all work is performed by contract 
with outside researchers--minimizing institutional interests within 
DARPA that might prolong research that is no longer promising.
    DARPA strives to transfer its research products to actual 
warfighters. This transfer may occur for research that leads to a 
component technology--such as a stealth technology or microchip--that a 
defense contractor incorporates the component into larger system that 
it ultimately sells to a service branch. Because DARPA relies on 
outside research laboratories, the contractor itself may have 
participated in the development of the technology, acquiring enough 
familiarity and confidence in it to use it in a real product it sells 
to a service branch.
    The transfer of technology from DARPA to a service branch may be 
more challenging, however, for a more elaborate technology. The 
technology might compete with a significant existing technology already 
in use by a service. Furthermore, because DARPA looks beyond known, 
short-term, technological needs, its technology may demand new methods 
for employing the technology. As a result, a service branch may resist 
acquiring the DARPA technology. To overcome this resistance, DARPA can 
appeal directly to the Secretary of Defense, since its position within 
DOD does not require reporting through the service branches.

History and Structure of In-Q-Tel. In-Q-Tel started off making 
investments primarily in the information technology area, including 
Internet security, data integration, imagery analysis, and language 
translation, and in recent years has expanded into infrastructure 
priorities such as wireless communications and nanotechnology, and 
biodefense products such as sensors. These investments have helped 
government agencies keep up with technology developments in the 
commercial marketplace, and helped the intelligence community in 
particular to mold, develop and deploy crucial technologies in a timely 
manner.
    To keep up with the boom in innovations in the private sector, 
especially in information technology (IT), the CIA assembled a team of 
senior staff and outside consultants and lawyers in 1998 to design an 
entity to partner with industry in accelerated solutions to IT problems 
facing the intelligence community. After meeting with investment 
bankers, venture capitalists, entrepreneurs, and Members of Congress 
and staff, the team conceived what is now In-Q-Tel.
    In-Q-Tel actively seeks out emerging technology that can help meet 
the needs of its intelligence agency clients. Its primary means of 
involvement with fledgling technologies is to invest in the companies 
developing the technology alongside of commercial investment partners, 
using the equity tool, combined with a great deal of contractual 
flexibility, to provide In-Q-Tel and its government partners early 
access to the technology and the ability to influence product 
development.
    Small or newer companies often do not to target the Federal 
Government market because it can be difficult to target or slow to 
access. And because those companies often need to penetrate their 
markets quickly to generate cash flow, government customers can miss 
the chance to influence product development. Moreover, private venture 
capital firms sometimes discourage small companies they invest in from 
doing business with the government because the complexity of the 
procurement process and long lead time on procurement decisions. This 
means that agencies are often two to three years behind the commercial 
market for technology, especially in areas like IT where there is rapid 
innovation.
    Through special flexibility in contracting arrangements granted by 
Congress similar to the flexibility enjoyed by DARPA in its 
arrangements, In-Q-Tel is able to overcome procurement obstacles and to 
help the intelligence agencies adopt technology more quickly. However, 
in the long run, In-Q-Tel believes that the products it invests in 
should be targeted at a commercial market, to lower costs for its 
client agencies, and that they should be purchased through normal 
procedures once fully commercialized.
    A Board of Trustees oversees In-Q-Tel's direction, strategy, and 
policies.\3\ In-Q-Tel is managed by a CEO and has a staff of 64. Its 
current budget is estimated to be $60 million.\4\ In-Q-Tel seeks to 
demonstrate solutions. It does not generate finished products. The CIA 
or other intelligence agencies acquire products through their own 
separate contracting arrangements. Although In-Q-Tel operations are 
public and few of their staff have security clearance, the manner of 
actual use of their products by the CIA may be classified. Nonetheless, 
In-Q-Tel offers the CIA a mechanism by which to involve industry in 
solving the specific technology problems faced by the intelligence 
community.
---------------------------------------------------------------------------
    \3\ Among its trustees is Norman Augustine, chair of the committee 
that produced the NAS Rising Above the Gathering Storm report. In an 
August 15, 2005 Washington Post article, Augustine called In-Q-Tel 
``far more successful than [he] thought it would be,'' but ``still an 
unproved experiment.''
    \4\ ``Tech Entrepreneur Joins CIA's Venture Capital Arm,'' 
Washington Post, January 4, 2006. http://www.washingtonpost.com/wp-dyn/
content/article/2006/01/03/AR2006010301401.html
---------------------------------------------------------------------------

7. Legislative Proposals

H.R. 4435 (Gordon): A bill to provide for the establishment of the 
Advanced Research Projects Agency-Energy

    This bill establishes the Advanced Research Projects Agency-Energy 
(ARPA-E) within DOE. This new agency is modeled after DARPA. Under the 
bill, ARPA-E is headed by a Director appointed by the Secretary. The 
Director hires program managers to manage individual projects, and the 
project managers are given flexibility in establishing R&D goals for 
the program. Program managers will also be responsible for selecting 
projects for support as well as monitoring their progress. The ARPA-E 
will have authority to hire specialized science and engineering 
personnel to be program managers. Participation in the program is 
limited to institutions of higher education, companies or consortia of 
universities and companies, and these consortia may also include 
federally funded research and development centers.
    In addition, the bill establishes an Energy Independence 
Acceleration Fund, allows for recoupment of funds from successful 
commercialization projects, and includes provisions relating to an 
Advisory Committee and evaluation of ARPA-E.

S. 2197 (Domenici/Bingaman/Alexander/Mikuski): Protecting America's 
Competitive Edge through Energy Act of 2006, known as the ``PACE-
Energy'' Act

    Section 4 of this bill, which will be marked up on March 8, creates 
ARPA-E, using language based on the law that created the Homeland 
Security Advanced Research Projects Agency. Under the bill, ARPA-E is a 
new office within DOE that will report to the Under Secretary for 
Science.

S. 2196 (Clinton/Reid/Bingaman): Advanced Research Projects Energy Act

    This bill establishes the Advanced Research Projects Agency-Energy 
within the Department of Energy. The provisions of this bill also 
include prizes for advanced technology achievements, annual reporting 
requirements, and authorizations.

8. Witness Questions

Dr. Steve Chu, Dr. Fernando L. Fernandez, Ms. Melanie Kenderdine, and 
        Dr. David Mowery

        1.  Should ARPA-E be designed more to foster directed basic 
        research or to get products into the marketplace? If the focus 
        were basic research, what steps would ARPA-E or other entities 
        have to take to affect the marketplace? If the focus were 
        technology transfer, what specific barriers would ARPA-E be 
        designed to overcome, how would it do so, and would that be the 
        most effective way that government could transform the energy 
        marketplace?

        2.  What kinds of entities should receive funding from ARPA-E? 
        Should the National Laboratories be able to receive funding 
        from ARPA-E? How should the work funded by ARPA-E differ from 
        work funded under existing DOE basic and applied research 
        programs? How could Congress structure ARPA-E to ensure that 
        ARPA-E did not end up carrying out programs that are 
        substantially similar to those already in DOE's portfolio?

        3.  Is it credible to develop a solution to U.S. energy needs 
        based on the Defense Advanced Research Projects Agency (DARPA), 
        given that DARPA is developing ideas for a market in which the 
        government itself is the primary customer and cost is not a 
        primary concern?

Dr. Catherine Cotell

        1.  How far along in the research and development process are 
        the products and processes that In-Q-Tel supports? To what 
        extent has government research funding contributed to the 
        products and processes that In-Q-Tel supports? How would you 
        contrast In-Q-Tel's role with that of the Defense Advanced 
        Research Projects Agency (DARPA)?

        2.  To what extent do you think the In-Q-Tel model could be 
        applied to areas in which the government is not going to be a 
        primary or early user of a technology? What practical and/or 
        philosophical questions would such an expansion of the In-Q-Tel 
        model raise?

        3.  What have you found to be the primary barriers to new 
        technologies coming to market? Does the U.S. seem to have more 
        of a problem creating new technologies or bringing them to 
        market? Do you think the same factors are the primary barriers 
        in the energy market?

Appendix 1

    ARPA-E Proposal Excerpted from Rising Above the Gathering Storm



    Perhaps no experiment in the conduct of research and engineering 
has been more successful in recent decades than the Defense Advanced 
Research Projects Agency model. The new agency proposed herein is 
patterned after that model and would sponsor creative, out-of-the-box, 
transformational, generic energy research in those areas where industry 
by itself cannot or will not undertake such sponsorship, where risks 
and potential payoffs are high, and where success could provide 
dramatic benefits for the Nation. ARPA-E would accelerate the process 
by which research is transformed to address economic, environmental, 
and security issues. It would be designed as a lean, effective, and 
agile--but largely independent--organization that can start and stop 
targeted programs based on performance and ultimate relevance. ARPA-E 
would focus on specific energy issues, but its work (like that of DARPA 
or NIH) would have significant spinoff benefits to national, State, and 
local government; to industry; and for the education of the next 
generation of researchers. The nature of energy research makes it 
particularly relevant to producing many spin off benefits to the broad 
fields of engineering, the physical sciences, and mathematics, fields 
identified in this review as warranting special attention. Existing 
programs with similar goals should be examined to ensure that the 
Nation is optimizing its investments in this area. Funding for ARPA-E 
would begin at $300 million for the initial year and increase to $1 
billion over five years, at which point the program's effectiveness 
would be reevaluated. The committee picked this level of funding the 
basis of on its review of the budget history of other new research 
activities and the importance of the task at hand.
    The United States faces a variety of energy challenges that affect 
our economy, our security, and our environment (see Box 6-4). 
Fundamentally, those challenges involve science and technology. Today, 
scientists and engineers are already working on ideas that could make 
solar and wind power economical; develop more efficient fuel cells; 
exploit energy from tar sands, oil shale, and gas hydrates; minimize 
the environmental consequences of fossil-fuel use; find safe, 
affordable ways to dispose of nuclear waste; devise workable methods to 
generate power from fusion; improve our aging energy-distribution 
infrastructure; and devise safe methods for hydrogen storage.\6\
---------------------------------------------------------------------------
    \6\ M.S. Dresselhaus and I.L. Thomas. Alternative energy 
technologies. Nature 414(2001):332-337.
---------------------------------------------------------------------------
    ARPA-E would provide an opportunity for creative ``out-of-the-box'' 
transformational research that could lead to new ways of fueling the 
Nation and its economy, as opposed to incremental research on ideas 
that have already been developed. One expert explains, ``The supply [of 
fossil-fuel sources] is adequate now and this gives us time to develop 
alternatives, but the scale of research in physics, chemistry, biology 
and engineering will need to be stepped up, because it will take 
sustained effort to solve the problem of long-term global energy 
security.'' \7\
---------------------------------------------------------------------------
    \7\ Ibid.
---------------------------------------------------------------------------
    Although there are those who believe an organization like ARPA-E is 
not needed (Box 6-3), the committee concludes that it would play an 
important role in resolving the Nation's energy challenges; in 
advancing research in engineering, the physical sciences, and 
mathematics; and in developing the next generation of researchers. A 
recent report of the Secretary of Energy Advisory Board's Task Force on 
the Future of Science Programs at the Department of Energy notes, 
``America can meet its energy needs only if we make a strong and 
sustained investment in research in physical science, engineering, and 
applicable areas of life science, and if we translate advancing 
scientific knowledge into practice. The current mix of energy sources 
is not sustainable in the long run.'' \8\ Solutions will require 
coordinated efforts among industrial, academic, and government 
laboratories. Although industry owns most of the energy infrastructure 
and is actively developing new technologies in many fields, national 
economic and security concerns dictate that the government stimulate 
research to meet national needs. These needs include neutralizing the 
provision of energy as a major driver of national security concerns. 
ARPA-E would invest in a broad portfolio of foundational research that 
is needed to invent transforming technologies that in the past were 
often supplied by our great industrial laboratories (see Box 6-5). 
Funding of research underpinning the provision of new energy sources is 
made particularly complex by the high cost, high risk and long-term 
character of such work--all of which make it less suited to university 
or industry funding.
---------------------------------------------------------------------------
    \8\ Secretary of Energy's Advisory Board, Task Force on the Future 
of Science Programs at the Department of Energy. Critical Choices: 
Science, Energy and Security. Final Report. Washington, DC: U.S. 
Department of Energy, Oct. 13, 2003, p. 5.
---------------------------------------------------------------------------
    Among its many missions, DOE promotes the energy security of the 
United States, but some of the department's largest national 
laboratories were established in wartime and given clearly defense-
oriented missions, primarily to develop nuclear weapons. Those weapons 
laboratories, and some of the government's other large science 
laboratories, represent significant national investments in personnel, 
shared facilities, and knowledge. At the end of the Cold War, the 
Nation's defense needs shifted and urgent new agendas became clear--
development of clean sources of energy, new forms of transportation, 
the provision of homeland security, technology to speed environmental 
remediation, and technology for commercial application. Numerous 
proposals over recent years have laid the foundation for more extensive 
redeployment of national laboratory talent toward basic and applied 
research in areas of national priority.\9\
---------------------------------------------------------------------------
    \9\ Galvin Panel report, Task Force on Alternative Futures for the 
Department of Energy National Laboratories, Secretary of Energy 
Advisory Board. Washington, DC.: U.S. Department of Energy, Feb. 1995; 
PCAST, Federal Energy Research and Development for the Challenges of 
the Twenty-First Century, Report of the Energy Research and Development 
Panel, the President's Committee of Advisors on Science and Technology, 
Washington, DC, Nov. 1997; Government Accounting Office. Best 
Practices: Elements Critical to Successfully Reducing Unneeded RDT&E 
Infrastructure. USGAO Report to Congressional Requesters. Washington, 
DC: GAO (?), Jan. 8 1998.



    Introducing a small, agile, DARPA-like organization could improve 
DOE's pursuit of R&D much as DARPA did for the Department of Defense. 
Initially, DARPA was viewed as ``threatening'' by much of the 
department's established research organization; however, over the years 
it has been widely accepted as successfully filling a very important 
role. ARPA-E would identify and support the science and technology 
critical to our nation's energy infrastructure. It also could offer 
---------------------------------------------------------------------------
several important national benefits:

          Promote research in the physical sciences, 
        engineering, and mathematics.

          Create a stream of human capital to bring innovative 
        approaches to areas of national strategic importance.

          Turn cutting-edge science and engineering into 
        technology for energy and environmental applications.

          Accelerate innovation in both traditional and 
        alternative energy sources and in energy-efficiency mechanisms.

          Foster consortia of companies, colleges and 
        universities, and laboratories to work on critical research 
        problems, such as the development of fuel cells.

    The agency's basic administrative structure and goals would mirror 
those of DARPA, but there would be some important differences. DARPA 
exists mainly to provide a long-term ``break-through'' perspective for 
the armed forces. DOE already has some mechanisms for long-term 
research, but it sometimes lacks the mechanisms for transforming the 
results into technology that meets the government's needs. DARPA also 
helps develop technology for purchase by the government for military 
use. By contrast, most energy technology is acquired and deployed in 
the private sector, although DOE does have specific procurement needs. 
Like DARPA, ARPA-E would have a very small staff, would perform no R&D 
itself, would turn over its staff every three to four years, and would 
have the same personnel and contracting freedoms now granted to DARPA. 
Box 6-6 illustrates some energy technologies identified by the National 
Commission on Energy Policy as areas of research where federal research 
investment is warranted that is in research areas in which industry is 
unlikely to invest.






    Chairman Boehlert. The hearing will come to order.
    I want to welcome everyone to this morning's hearing, which 
will be the first public balanced discussion of the proposal to 
establish an Advanced Research Projects Agency in the 
Department of Energy, or as it has come to be called, ``ARPA-
E.'' Given its origin in the National Academy of Science's 
``Gathering Storm'' report, the ARPA-E proposal must be treated 
seriously and respectfully.
    But serious and respectful treatment means thinking through 
all the strengths and weaknesses of the proposal and the 
alternative ways to achieve the goals of the Academy panel and 
the sometimes-differing goals of the proposal's other 
supporters. It does not mean rushing through open-ended 
legislation with limited analysis or debate.
    Parenthetically, let me deviate from the text. There is 
much--to draw an analogy here. There is much talk in this town 
about the urgent need for lobbying reform. A hasty rush to 
judgment on the part of the House, we've solved the problem. We 
have banned former Members from the gymnasium. Give me a break.
    So I intend for the Science Committee to act deliberately, 
starting with this balanced panel that will enable us to think 
through such key issues as: why more revolutionary technologies 
have not made their way into the energy market, the different 
approaches to getting more technology to market, how an ARPA-E 
would compare to existing programs, and what characteristics an 
ARPA-E would have to have to be successful.
    Right now, I would describe myself as an open-minded 
skeptic about ARPA-E. On the one hand, I am immediately drawn 
to any proposal designed to foster more focused research on 
energy technologies and a more sustainable U.S. energy 
portfolio. But on the other hand, I see that the ARPA-E 
proposal is predicated on several implicit assumptions, all of 
which are, at the very least, open to debate, and I hope they 
will be debated here this morning.
    I think the four key assumptions are: one, that the problem 
with the energy market is that the supply of new technologies 
is insufficient; two, that the supply is constrained because of 
a lack of fundamental research; three, that a sensible way to 
promote more fundamental research is to apply the DARPA model 
to a civilian energy sector; and four, that implementing the 
DARPA model is the best way to improve energy research, given 
the tight federal budgets.
    Now let me examine each of these assumptions briefly, and I 
hope our witnesses will examine them as well and, in the 
process, help educate us.
    I think the first assumption is clearly wrong. The biggest 
barrier to new energy technologies is not supply. It is demand. 
And until the government is willing to institute policies to 
stimulate demand or until oil gets to a dangerously high price, 
it is going to be very hard for new technologies to enter or 
dominate the new market. We already have plenty of technologies 
to improve automobile fuel efficiency just sitting on the 
shelf, gathering dust, to cite one sad example. So I see this 
whole supply debate as largely beside the point. Until we 
change the market, developing new technologies is just going to 
be the equivalent of filling up a warehouse of a company that 
is already out of business. But the demand side isn't in our 
jurisdiction.
    But that said, obviously, improving the technology supply 
wouldn't hurt, but is the supply problem due primarily to a 
lack of fundamental research or are the problems further down 
the research pipeline, to use the outdated metaphor? Our 
witnesses have a range of views on that, which need to be 
heard.
    Similarly, our witnesses differ on the applicability of the 
DARPA model, and I have to say that I haven't heard a very good 
explanation of how the DARPA model can be reasonably employed 
in a situation, unlike in Defense where the government is not 
the primary or initial customer. For starters, the politics 
surrounding technology choices are going to be completely 
different in a commodity market.
    And finally, we need to decide whether even if ARPA-E were 
a good idea whether it would be a better use of funds than 
granting the President's proposal to increase the DOE Office of 
Science by 14 percent, because in this budget environment, we 
surely are not going to be able to do both. And increasing the 
Office of Science budget was an even higher priority Academy 
recommendation than ARPA-E.
    So we have got some serious, thorny, critical questions 
before us today that ought to provoke good conversation, not 
only with those of us on the dais, but among our impressive 
witnesses as well. And I look forward to hearing what they have 
to say. What we hear today will be an important factor in 
deciding how we proceed legislatively over the next couple of 
months as we prepare the competitiveness legislation to deal 
with the American Competitiveness Initiative.
    Mr. Gordon.
    [The prepared statement of Chairman Boehlert follows:]
          Prepared Statement of Chairman Sherwood L. Boehlert
    I want to welcome everyone to this morning's hearing, which will be 
the first public, balanced discussion of the proposal to establish an 
Advanced Research Projects Agency in the Department of Energy, or as it 
has come to be called ``ARPA-E.'' Given its origin in the National 
Academy of Science's Gathering Storm report, the ARPA-E proposal must 
be treated seriously and respectfully.
    But serious and respectful treatment means thinking through all the 
strengths and weaknesses of the proposal and all the alternative ways 
to achieve the goals of the Academy panel and the sometimes-differing 
goals of the proposal's other supporters. It does not mean rushing 
through open-ended legislation with limited analysis or debate.
    So I intend for the Science Committee to act deliberately, starting 
with this balanced panel that will enable us to think through such key 
issues as: why more revolutionary technologies have not made their way 
into the energy market, the different approaches to getting more 
technology to market, how an ARPA-E would compare to existing programs, 
and what characteristics an ARPA-E would have to have to be successful.
    Right now, I would describe myself as an open-minded skeptic about 
ARPA-E. On the one hand, I am immediately drawn to any proposal 
designed to foster more focused research on energy technologies and a 
more sustainable U.S. energy portfolio. But on the other hand, I see 
that the ARPA-E proposal is predicated on several implicit assumptions, 
all of which are, at the very least, open to debate--and I hope they 
will be debated this morning.
    I think the four key assumptions are: One, that the problem with 
the energy market is that the supply of new technologies is 
insufficient; two, that the supply is constrained because of a lack of 
fundamental research; three, that a sensible way to promote more 
fundamental research is to apply the DARPA (the Defense Advanced 
Research Projects Agency) model to the civilian energy sector; and 
fourth, that implementing the DARPA model is the best way to improve 
energy research given the tight federal budget.
    Let me examine each of these assumptions briefly, and I hope our 
witnesses will examine them as well.
    I think the first assumption is clearly wrong. The biggest barrier 
to new energy technologies is not supply; it's demand. And until the 
government is willing to institute policies to stimulate demand--or 
until oil gets to a dangerously high price--it's going to be very hard 
for new technologies to enter or dominate the market. We already have 
plenty of technologies to improve automobile fuel economy just 
``sitting on the shelf,'' to cite just one sad example.
    So I see this whole supply debate as largely beside the point. 
Until we change the market, developing new technologies is just going 
to be the equivalent of filling up a warehouse of a company that's 
already out of business. But the demand side isn't in our jurisdiction.
    But, that said, obviously improving the technology supply wouldn't 
hurt. But is the supply problem due primarily to a lack of fundamental 
research, or are the problems further down the research ``pipeline'' to 
use that outmoded metaphor? Our witnesses have a range of views on 
that, which need to be heard.
    Similarly, our witnesses differ on the applicability of the DARPA 
model. And I have to say that I haven't heard a very good explanation 
of how the DARPA model can be reasonably employed in situations, unlike 
defense, where the government is not the primary or initial customer. 
For starters, the politics surrounding technology choices are going to 
be completely different in a commodity market.
    And finally, we need to decide whether, even if ARPA-E were a good 
idea, whether it would be a better use of funds than granting the 
President's proposal to increase the DOE Office of Science by 14 
percent. Because in this budget environment, we surely are not going to 
be able to do both. And increasing the Office of Science budget was an 
even higher priority Academy recommendation than ARPA-E.
    So we've got some serious, thorny, critical questions before us 
today that ought to provoke some good conversation not only with those 
of us on the dais, but among our impressive witnesses as well. I look 
forward to hearing the debate.
    What we hear today will be an important factor in deciding how we 
proceed legislatively over the next couple of months as we prepare 
competitiveness legislation.
    Mr. Gordon.

    Mr. Gordon. Thank you, Mr. Chairman, for bringing this 
group together for a hearing today, and I think you had some 
very thoughtful remarks and questions that we need to dwell on.
    Let me--I want to depart from my statement today and have a 
conversation with the Majority Members that are here today. I 
wish there were more, but I know that many of the staffs are 
here, and others will be coming in.
    Let me first start with a brief history, I won't say 
lesson, but refresher.
    A couple of years ago, Senator Lamar Alexander and Senator 
Bingaman, Chairman Boehlert, and myself asked the Academies of 
Science to put together a commission to talk about the 
competitiveness of our country in the 21st century, what 
would--what could we do about it. The National Academies came 
together. They brought together some significant CEOs, Nobel 
laureates, academic individuals, and they came forward with 
what we know as ``Rising Above the Gathering Storm.'' And you 
might remember that Norman Augustine was the Chairman of that 
commission and reported to us a few months ago.
    I want to read to you just quickly a couple of the 
statements that he made to us at that hearing.
    ``It is the unanimous view of our committee that America 
today faces a serious and intensifying challenge with regard to 
the future competitiveness and standard of living. Further, we 
appear to be on the losing path. The thrust of our findings is 
straightforward. The standard of living of Americans in this 
and the years ahead will depend to a very large degree on the 
quality of jobs that they are able to hold.''
    Now my wife is out of town, so I am picking up my five-
year-old daughter this afternoon. I am going to have to bring 
her back here, so you may see her on the Floor, but I am very 
concerned that she, and probably your kids and grandkids, very 
well--this is not rhetoric, but very well could inherit the 
first national economy and standard of living that is lower 
than their parents. You know, this is a very real possibility. 
And by no misunderstanding, Mr. Augustine laid that out to us.
    Now they didn't do a lot of what you might call original 
research. They didn't do a lot of--plow a lot of new ground. 
What they did was take the recommendations that had been made 
over and over and over and just brought them together. And I 
think it is time that we stop, you know, trying to have new 
commissions, and it is time to get ready to do something. And 
with that in mind, the Senate has put together--they took the 
Augustine recommendations--the legislation--or they took the 
Augustine report and made it into legislation. Two-thirds of 
the Senators, an equal amount of Democrats and Republicans, 
have signed on to that. Two-thirds of the Senators have done 
that. Now if we were to take that legislation and bring it here 
to the House, it would go to seven different committees, and 
you know what that would mean. So Lamar called me a while back 
and asked me to participate with this. I said of course I 
would, and we had already been started, but I didn't want to 
take their exact bill, because it would just get lost over 
here.
    So what I have done is I have taken the bulk of the 
``Rising Above the Gathering Storm.'' I didn't get into the tax 
credits and the ways and means stuff. Dr. Thomas thinks he 
knows what he is doing, and I don't think he wanted 
recommendations from the Science Committee. There were some 
patent things that, again, judiciary can handle, but the rest 
of it, the guts of it was education, investment in research, 
and the--to a lesser extent, the ARPA-E proposal. I have put 
those into three different bills. I have sent, I guess, two 
personal letters for dear colleagues and direct staff contacts 
with all of your offices.
    Now we have, I think, virtually all of the Democrat Science 
Committee Members on the bills. We have a few Republicans on 
the bills at large. But let me say, folks, if we can't get 
together on something that two-thirds of the Senate can, it is 
going to be a long damn year. And you know, I don't know 
whether it is going to be next year or it is going to be two 
years or 10 years, but there is a pretty good chance I am going 
to be Chairman of this committee. And one of the rules is going 
to be I don't care, you know, who introduces a bill. A good 
idea is a good idea, and we need to go forward with it.
    And I want to, again, put to your attention these bills 
today. ARPA-E is a little more controversial. Now we did this 
in a way that gave the Secretary a lot of flexibility, tried to 
build it around the DARPA model, and it may not be what 
everybody wants. The objective is to reduce our energy 
dependency by 20 percent over the next 10 years. I agree with 
the Chairman that, you know, conservation is a part of that. 
You know, I am not a big nuke fan, but that is a part of it. 
You know, I am for everything, quite frankly. I think we are 
going to have to deal with everything.
    It is some more controversy, but when it comes to 
education, science education, there should be no 
misunderstanding. And what we are going to do, we are going to 
screw around, if you are not careful, and we are going to see 
the science education taken away from the National Science 
Foundation. It is already--you know, that is where it is 
heading right now. You are going to have something put in the 
Department of Energy or the Department of Education, and when 
that happens, it is going to get lost and be poorly managed.
    So again, I would like for you to take another look at 
these bills. You know. We--it was a rough start, but we finally 
got together on an authorization to NASA. We got an 
overwhelming vote in the House, and the reason was, I think, 
that folks were glad to see a bipartisan bill. You know, this 
could be a bridge not only for good legislation here but bring 
some camaraderie and civility to the House in general.
    So I would, once again, follow up on those two letters for 
dear colleagues and request that you take a look at this so 
that we could move forward.
    [The prepared statement of Mr. Gordon follows:]
            Prepared Statement of Representative Bart Gordon
    Mr. Chairman, thank you for holding this hearing today to consider 
the merits of the ARPA-E proposal. This proposal arose from a 
recommendation by a Committee of the National Academy of Science, 
National Academy of Engineering and the Institute of Health. The 
Committee was established at the request of certain Senators and House 
Members, including Chairman Boehlert and me.
    The Academies were asked to look at what actions ``federal policy-
makers could take to enhance the science and technology enterprise so 
that the United States can successfully compete, prosper, and be secure 
in the global community of the 21st century.'' We also asked the 
Academies to tell us what strategy could be used to implement each of 
their recommended actions. The result was the Committee's report 
entitled, Rising Above the Gathering Storm, which was released late 
last year.
    I have taken a different approach from the Senate in casting the 
report's recommendations into legislative language. Rather than 
introducing a comprehensive package as the Senate did, I have 
introduced a package of three bills that are primarily in the 
jurisdiction of the Science Committee. My bills deal with those 
recommendations in Science Education, and Science and Engineering. The 
third bill establishes an ARPA-E organization within DOE.
    My ARPA-E bill, H.R. 4435, has a very defined goal--to reduce 
imports of energy from foreign sources by 20 percent within 10 years 
through the development of transforming energy technologies. The 
Director of ARPA-E reports to the Secretary. However, the bill provides 
great flexibility to the Director in structuring and managing the 
organization to meet the goal.
    The Rising Above the Gathering Storm Report was very vague in how 
its proposed ARPA-E would be organized and exactly what it would 
accomplish. I, too, am flexible in considering how this organization 
should be put together and how it should accomplish meeting the 20 
percent goal. I do worry, however, that overly prescriptive legislation 
could inhibit the willingness of smart men and women to join ARPA-E and 
the ability of ARPA-E managers to accomplish whatever goals are 
ultimately established.
    Mr. Chairman, I believe this hearing will be a learning experience 
for all the Members of the Committee. Today's witnesses will bring us a 
variety of perspectives on how this organization should be put together 
and what it should do. I look forward to hearing their testimony today.
    Norman Augustine, the Chairman of the Academies Committee, gave the 
Science Committee this sobering assessment in his testimony last fall: 
``It is the unanimous view of our committee that America today faces a 
serious and intensifying challenge with regard to its future 
competitiveness and standard of living. Further, we appear to be on a 
losing path.''
    I trust that this is only the first of a number of hearings to 
address how the Nation will remain competitive. All the outside studies 
we need are complete; now is the time to act--not only on ARPA-E--but 
on all the other recommendations in this committee's jurisdiction.
    I look forward to working with the Chairman as we go forward on 
this important issue.
    I yield back the balance of my time.

    Chairman Boehlert. Thank you very much, Mr. Gordon. Thank 
you for your thoughtful commentary.
    Let me make a couple of observations in response.
    First of all, I couldn't agree more with the Augustine 
report, and he is, and they are, in the report, absolutely 
correct. We are on a ``losing path'' if we do nothing, and that 
is the sad fact.
    But the reality is we are determined to do something, and 
we have repeatedly indicated not only in response to this 
issue, but all of the issues that come before this panel, that 
we will work cooperatively with all Members to take meaningful, 
decisive action.
    Let me point out that in December, we had an innovation 
summit, which we had captains of industry, like Augustine, 
university presidents, Cabinet officers to talk about this very 
important subject of competitiveness. That very morning, I had 
a meeting in the White House with Josh Bolten, the Director of 
the Office of Management to once again lay out the compelling 
case that we had to do more to invest on the part of the 
government in basic science. We have to do more to improve the 
performance in K-12 science and math literacy. I was gratified, 
as I know you were, too, as all of us were concerned about this 
subject when the President, in his State of the Union message 
announced the American Competitiveness Initiative. More 
funding. It put both the--all three, National Science 
Foundation, which finances most university-based research in 
this country, the Office of Science at the Department of 
Energy, and NIST, very valuable agencies, directly in the front 
lines in this war dealing with competitiveness on a path to 
double the budget over 10 years. And I said following that 
State of the Union message to all who asked, that those 
eloquent words were very important, but they have to be 
followed by meaningful deeds.
    This is a town where a lot of eloquent words are expressed 
and there is no follow-through beyond the headline and the 
story of the next day. Two weeks later, there was the follow-
through. The eloquent words were followed by meaningful deeds. 
The budget submitted to Congress and the American people called 
for billions more in all of the areas of primary concern to you 
and to me, putting the National Science Foundation, the Office 
of Science, NIST on a path to double their budget over 10 years 
with significant increases in the first year, recognizing that 
we have to pump hundreds of millions of dollars more into 
science and math education K-12. They have heard our message, 
``they'' being the Administration, the leadership of our 
government in the Executive Branch. Not only have they heard 
our message and we have implored them to act, they have heeded 
the message.
    So now we are on a path to do what you and I have worked so 
hard over the years to encourage them to do. The fact of the 
matter is that we have to be very thorough and very 
deliberative as we do this. We have to, as I say, make haste a 
little bit slowly, but we are determined to move in a 
significant, meaningful way. And one of the issues under 
discussion is the ARPA-E proposal from the ``Rising Above the 
Gathering Storm'' report. And we want to examine them.
    So this is how we work, as you well know, in this 
committee. We get experts, the foremost experts in our country, 
on the subject matter being discussed before us, and we thank 
all of you for being facilitators. And it shouldn't surprise 
anyone that not every single one of these people agree on the 
whole package, as presented.
    So for thoughtful analysis and commentary, we invite them 
to have a dialogue with this committee, and we are looking 
forward to it. And I assure you, Mr. Gordon, and I assure all 
the Members of this committee, that we are determined to go 
forward, not next year or next month, but we have got to set 
the stage. We have got to sort of build the foundation for our 
action. A lot of the programs that are talked about in ``Rising 
Above the Gathering Storm'' are already in. Just yesterday, I 
met with the Chairman of the Appropriations Committee, Mr. 
Lewis of California, and said you know and everyone knows that 
the most important thing in this tight budget environment is 
the allocations you, Mr. Chairman of the Appropriations 
Committee, give to the individual subcommittees. And there are 
two subcommittees critically important, one chaired by Frank 
Wolf of Virginia, the other by David Hobson of Ohio, both of 
whom are on the same wavelength as we are. And so I said you 
have got to give them the allocations so that they cannot only 
embrace what the President is proposing but what we might add 
on to it. And I had that same message in a meeting yesterday 
afternoon at the White House. So we are on full alert. All 
systems are on go, and I look forward to a continuing working 
partnership with you.
    And now I will recognize----
    Mr. Gordon. Mr. Chairman, I have two comments. May I--would 
he yield for----
    Chairman Boehlert. But the Chairman didn't exceed your time 
limit, and what I want to do is get--recognize Ms. Biggert so 
we can have her commentary and then recognize someone on your 
side. And then we will go to the witnesses, because that is how 
we are going to learn the most. You and I could talk to each 
other all day and all night. We have a nice relationship. But 
let us hear from our witnesses, but first, Chairwoman Biggert.
    Ms. Biggert. Thank you very much, Mr. Chairman, and thank 
you for holding this hearing. I--for I know that you share my 
deep concern for our nation's future energy security. And I am 
pleased to be working with you to examine this interesting 
proposal by the National Academies of Science to support 
transformational research that could lead to new ways of 
fueling the Nation and its economy. And I--on that goal, I 
think that all of us agree, and I see no debate.
    However, I just don't see how the creation of a new agency 
and new bureaucracy achieves this goal, even if it is patterned 
after the famed DARPA. I remain open to the ARPA-E concept, but 
I will readily admit that I need some convincing.
    And why am I so skeptical? Well, let me count the ways.
    First, it is not clear what problems we are trying to solve 
with the creation of an ARPA-E.
    Is it a lack of private-sector investment in long-term or 
basic research? If so, how do we solve the problem by creating 
a brand new agency to distribute scarce federal resources to 
companies to conduct research that they wouldn't otherwise 
conduct? Correct me if I am wrong, but it doesn't--but doesn't 
the Academy's version of ARPA-E put the Federal Government in 
the position of picking which companies are winners?
    Is it a lack of federal funding for high-risk, 
transformational research? If so, how would you characterize 
DOE's current FreedomCAR and Hydrogen Initiatives? How about 
the President's Global Nuclear Energy Partnership or U.S. 
participation in ITER, the international fusion experiment? I 
don't know about my colleagues, but I would put these in a 
category of high-risk, transformational research.
    Is it a failure of the Department of Energy to effectively 
transfer new energy technologies from the laboratory to the 
market? If so, wouldn't it make more sense to closely examine 
the legal and policy obstacles to the transfer of technology 
from our universities, national laboratories, and other 
research institutions?
    In short, is this a solution in search of a problem?
    Second, this proposal to create an ARPA-E is largely based 
on the mythology of the agencies, namely the myths that DARPA 
can't do anything wrong and that DOE can't do anything right.
    Well, let me just relay a story about what I think is a 
DARPA failing. A number of scientists in my district developed 
a way to produce inexpensive, high-quality, titanium powder. 
You would think any technology to improve the processing or 
reducing the cost of titanium would be of obvious value to DOD 
because titanium is strong and lighter than steel.
    The scientists took their ideas to DARPA and DARPA turned 
them down. But they knew that they had a good idea, so they 
brought the idea to Congressman Bartlett and me. Despite the 
fact that the Army quickly recognized the transforming 
potential of this technology, DARPA had to be convinced. Only 
after the scientists had obtained the private sector capital, 
built a pilot plant, and demonstrated that the technology 
worked did DARPA decide to provide a relatively small sum of 
funding. Now in my book, that is not very high risk.
    And how does this story end?
    Well, just this week, DOE's National Energy Technology Lab 
and Boeing, the largest consumer of titanium in the world, 
joined the Army in my office to discuss plans to rapidly scale-
up the technology DARPA rejected in 2003.
    And third, we tried to replicate DARPA at the Department of 
Homeland Security, and did it work? Not according to most 
accounts. If it didn't work at DHS, why do we think it will 
work at DOE where the private sector, rather than the 
government, will be the primary customer?
    Finally, I think it is important to note that ARPA-E was 
one of 20 recommendations in the National Academy of Sciences 
``Gathering Storm'' report, and it was the only one not to 
receive the unanimous support of the Committee. Norm Augustine, 
who chaired the NAS panel, testified to this fact before the 
Committee in October of last year. And interestingly enough, 
opposition came from the one Member of the Committee with, 
arguably, the most expertise in energy markets and the energy 
industry.
    As the Chairman of the Energy Subcommittee, I take my 
responsibility for overseeing the research and development 
programs at the DOE very seriously. And I think that we need to 
find the right solutions, not just any solution. If ARPA-E is 
the right solution, I will support it. But to get to the right 
solution, we have an obligation to ask tough questions, and I 
think that is our purpose here today.
    I am anxious to hear this distinguished panel and to have 
them share their insight with us. And I think they represent a 
wealth of talent and expertise.
    And with that, I yield back the balance of my time.
    [The prepared statement of Ms. Biggert follows:]
           Prepared Statement of Representative Judy Biggert
    Thank you, Mr. Chairman, and thank you for holding this hearing, 
for I know you share my deep concern for our nation's future energy 
security. I am pleased to be working with you to examine this 
interesting proposal by the National Academies of Science to support 
``transformational research that could lead to new ways of fueling the 
Nation and its economy.'' On that goal, I see no debate.
    However, I just don't see how the creation of a new agency--a new 
bureaucracy achieves this goal, even if it is patterned after the famed 
DARPA. I remain open to the ARPA-E concept, but I will readily admit 
that I need some convincing.
    Why am I so skeptical? Let me count the ways. First, it is not 
clear what problems we are trying to solve with the creation of an 
ARPA-E.
    Is it a lack of private sector investment in long-term or basic 
research? If so, how do we solve the problem by creating a brand new 
agency to distribute scarce federal resources to companies to conduct 
research they wouldn't otherwise conduct? Correct me if I'm wrong, but 
doesn't the Academy's version of ARPA-E put the Federal Government in 
the position of picking what companies are winners?
    Is it a lack of federal funding for high-risk, transformational 
research? If so, how would you characterize DOE's current FreedomCAR 
and Hydrogen Initiatives? How about the President's Global Nuclear 
Energy Partnership, or U.S. participation in ITER, the international 
fusion experiment? I don't know about my colleagues, but I would put 
these in the category of high-risk, transformational research.
    Is it a failure by the Department of Energy to effectively transfer 
new energy technologies from the laboratory to the market? If so, 
wouldn't it make more sense to closely examine the legal and policy 
obstacles to the transfer of technology from our universities, national 
laboratories, and other research institutions?
    In short, is this a solution in search of a problem?
    Second, this proposal to create an ARPA-E is largely based on the 
mythology of the agencies--namely the myths that DARPA can't do 
anything wrong, and that DOE can't do anything right.
    Well, let me relay a story about a DARPA failing. A number of 
scientists in my district developed a way to produce inexpensive, high-
quality, titanium powder. You would think any technology to improve the 
processing or reduce the cost of titanium would be of obvious value to 
the DOD because titanium is strong and lighter than steel.
    The scientists took their idea to DARPA, and DARPA turned them 
down. But they knew they had a good idea. They brought their idea to 
Congressman Bartlett and me. Despite the fact that the Army quickly 
recognized the ``transforming'' potential of this technology, DARPA had 
to be convinced. Only after the scientists had obtained private sector 
capital, built a pilot plant, and demonstrated that the technology 
worked did DARPA decide to provide a relatively small sum of funding. 
By my book, that's not very ``high-risk.''
    How does the story end? Well, just this week, the DOE's National 
Energy Technology Laboratory and Boeing--the largest consumer of 
titanium in the world--joined the Army in my office to discuss plans to 
rapidly scale-up the technology DARPA rejected in 2003.
    Third, we tried to replicate DARPA at the Department of Homeland 
Security. Did it work? Not according to most accounts. If it didn't 
work at DHS, why do we think it will work at DOE, where the private 
sector--rather than the government--will be the primary customer?
    Fourth, where exactly are we going to get the money for ARPA-E? 
Many of my colleagues here today advocating for the creation of an 
ARPA-E couldn't stop criticizing the Administration just last month for 
failing to ``adequately'' fund such energy programs as energy 
efficiency and renewable energy. With growing demands on our limited 
federal resources, is there really ``new money'' available for this 
agency? Realistically, no; the money will come from other basic and 
applied DOE research programs.
    Finally, I think it is important to note that ARPA-E was one of 20 
recommendations in the National Academy of Science's ``Gathering 
Storm'' report, and it was the only one not to receive the unanimous 
support of the Committee. Norm Augustine, who chaired the NAS panel, 
testified to this fact before the Committee in October of last year. 
And, interestingly enough, opposition came from the one Member of the 
Committee with arguably the most expertise in energy markets and the 
energy industry.
    As Chairman of the Energy Subcommittee, I take my responsibility 
for overseeing the research and development programs at the DOE very 
seriously. I can't think of anything more important to our national 
security, our economy, and our standard of living than energy. And I 
know everyone here is genuinely interested in finding solutions to our 
nation's energy challenges.
    But we need to find the ``right'' solutions, not just any solution. 
If ARPA-E is the right solution, I will support it. But to get to the 
``right'' solution, we have an obligation to ask tough questions. 
That's my purpose here today.
    I'm anxious for this distinguished panel to share their insight 
with us. You represent a wealth of talent and experience, and we are 
privileged to have you here with us today. Thank you for participating. 
With that, I yield back the balance of my time.

    Chairman Boehlert. And let me congratulate the 
distinguished Chair of the Subcommittee on Energy. She used 
exactly five minutes, her time.
    Now here is the deal. We are told that about 11:20, 11:25, 
we are going to have just one vote. I hope it is delayed even 
more, but our hope would be that we could retain the panel, we 
would dash over to vote, and come right back. And while you are 
inconvenienced, but you have got a lot that we need to hear. 
And so--and secondly, the Chair would recognize the Ranking 
Member of the Subcommittee, who is not here at the time, he has 
another commitment, and I will then recognize Mr. Gordon to 
consume that time, but then we want to get to the witnesses.
    Mr. Gordon. Thank you, Mr. Chairman. I will be brief. You 
were generous in your allocation of my time in my opening 
statement, so let me just follow along on a couple of things I 
was saying earlier.
    After the Chairman's opening remarks, at 90 percent or more 
of our hearings here, my opening remarks begin with ``I agree 
with the Chairman,'' which is the case so often on so many 
things.
    But I do feel compelled to point out that it is nice that 
he has talked to the appropriators, but just spending money 
doesn't help if you don't get it right. In the President's 
budget, he dramatically cut, on the way to doing away with, the 
50-year program of math and science education in the National 
Science Foundation. You know, that is bad policy, in my 
opinion.
    We need an authorization. I think we need to move forward 
here. Two-thirds--I will remind everybody. Two-thirds of the 
Senate, equally between Democrats and Republicans, have come 
together in a base bill. And surely, they will make some 
changes as they go forward, but they had a--it came out of the 
subcommittee yesterday. So I think it is time for us to take 
some action.
    Now I--the Chairman was very eloquent about the earlier 
science forum that they had. I will remind you, the Democrats 
were not invited to come. There was no effort to put our, 
hopefully, somewhat thoughtful comments in there.
    Now I signed on to a Republican bill yesterday, I do it 
almost every day, to Duncan Hunter's bill. You have got--you 
know, we have got three bills before us now. You know. It is 
time to start working together. You know, we can--it is time to 
stop studying. This is--again, today is a little more 
controversial. Certainly, the education bill shouldn't. The 
train is going to move out if we don't get moving.
    Thank you, Mr. Chairman.
    Chairman Boehlert. Thank you very much.
    I want to make sure that we have got a ticket on that 
train.
    I will tell you what I tell my constituents. As you well 
know from my record, oftentimes my view and my votes are 
somewhat different from the Administration position, and what I 
tell my constituents, when you see me differ from the 
Administration, you can assume the Administration is wrong.
    [The prepared statement of Mr. Costello follows:]
         Prepared Statement of Representative Jerry F. Costello
    Good morning. I want to thank the witnesses for appearing before 
our committee to discuss the possibility of establishing an Advanced 
Research Projects Agency (ARPA-E) in the Department of Energy.
    The report released by the National Academy of Sciences (NAS) on 
October 12, 2005 entitled, Rising Above the Gathering Storm: Energizing 
and Employing America for a Brighter Economic Future, recommended the 
creation of an ARPA-E to fund research that could lead to new ways of 
fueling the Nation and the economy. I commend Chairman Boehlert and 
Ranking Member Gordon for holding this hearing today because the 
recommendations this report issued will provide our committee with good 
policy options that ensure new ideas and innovation. I look forward to 
learning more about APRA-E and how it would be structured.
    The second component of the Augustine report focused on ways to 
enhance America's competitiveness. In June of this year, Chairman 
Boehlert and Ranking Member Gordon wrote to the NAS to endorse the 
Senate request for a study of ``the most urgent challenges the United 
States faces in maintaining leadership in key areas of science and 
technology,'' to provide advice and recommendations for maintaining 
U.S. leadership in science and technology in the face of growing global 
competition. Today, Americans are feeling the effects of globalization 
because a substantial portion of our workforce finds itself in direct 
competition for jobs with lower-wage workers around the globe. It comes 
as no surprise that high-tech jobs are being outsourced to foreign 
countries like China and India. Without high-quality, knowledge 
intensive jobs and the innovative enterprises that lead to discovery 
and new technology, our economy will suffer and our constituents will 
face a lower standard of living. I am very concerned about the issue of 
off-shoring and outsourcing and how these trends will affect current 
scientists and engineers, as well as the future employment 
opportunities and career choices of students.
    Despite claims to the contrary by the Administration, the federal 
research and development budget is not faring well, particularly the 
non-defense component which has been flat for 30 years. In FY07, the 
Administration proposed a one percent spending reduction in the federal 
science and technology budget. Reductions like this continue to chip 
away at the U.S. research base and jeopardize our economic strength and 
long-term technological competitiveness. Innovation does indeed drive 
our economic growth, but we must have the research base to drive new 
energy technologies.
    I welcome our panel of witnesses and look forward to their 
testimony.

    [The prepared statement of Ms. Johnson follows:]
       Prepared Statement of Representative Eddie Bernice Johnson
    Thank you, Mr. Chairman and Ranking Member.
    Our nation is experiencing an energy crisis. America's dependence 
on oil has begun to cripple its economy.
    As demand from developing nations such as China increases, simple 
economics tell us the price of oil will increase.
    More and more money must come out of hard-working Americans' 
pocketbooks for gasoline, and so they are spending less on other 
things.
    All indicators agree that the price of oil will likely continue to 
go up. It is becoming more apparent that national leadership will be 
required to push initiatives forward to lessen our dependence on oil. 
Alternative fuels should be studied. More efficient engines should be 
designed. There are many directions to take.
    Private industry is not moving as quickly as it needs to be moving 
in the development of alternative or more efficient fuels and engines. 
Therefore a proposal has been made by leading research experts at the 
National Academy of Science for the creation of an Advanced Research 
Projects Agency within the Department of Energy--ARPA-E.
    Ranking Member Gordon has proposed legislation based on the 
National Academy's recommendation, and I am a co-sponsor.
    This hearing comes at an opportune time, as Members of the Science 
Committee are interested to know the best way such a department would 
be organized and directed.
    I would like to thank our witnesses for being here today. The 
Committee will undoubtedly have many questions and benefit from your 
expertise and leadership in cutting-edge research.
    It is my hope that this hearing will help us as we provide the 
leadership necessary to get our energy economy back on track.
    Thank you, Mr. Chairman. I yield back.

    [The prepared statement of Mr. Honda follows:]
         Prepared Statement of Representative Michael M. Honda
    I thank Chairman Boehlert and Ranking Member Gordon for holding 
this important hearing today, and I thank our distinguished witnesses 
for making the time to be here.
    I've been in enough hearings of this committee to know that most of 
us on this committee, from both sides of the aisle, are on roughly the 
same page when it comes to recognizing that our nation is faced with 
significant energy challenges in the future and that science and 
technology will play an important role in addressing those challenges.
    Where we differ is in the details. Some of us would prefer to see 
more solar electricity generation, others nuclear, and still others 
clean coal. Should we focus on hybrids, hydrogen fuel cell vehicles, or 
liquid fuels produced from non fossil sources? I could go on all day 
listing all of the options that are probably supported by one member or 
another of this committee.
    The breadth of these short lists makes it clear that how we 
approach energy in the future is something we need to put a lot of 
thought into. Are we going to need to focus on research dollars in some 
very basic areas to generate new knowledge? Should we focus on bringing 
technologies that have already been invented within DOE labs but which 
are currently sitting on the shelf into the marketplace? Do we need to 
provide the private sector with assistance to overcome market failures?
    Each of these approaches probably requires a different kind of 
program or agency to implement it. At this point, we don't know which 
one we are thinking about, so it is essential that we talk about all of 
the possibilities. The ARPA-E model is one of those options, and I've 
co-sponsored Ranking Member Gordon's ARPA-E bill because I think it is 
an idea we should be talking about. I'll admit that in the wake of a 
hearing we had about DARPA's current directions in the area of computer 
science I'm a bit wary of creating another organization like it that 
might lose its way after being around for a long time, but if we take 
care we can design ARPA-E to avoid those problems.
    I look forward to hearing from our distinguished witnesses today, 
including my friend and Nobel Laureate Dr. Steve Chu of Lawrence 
Berkeley National Lab, about their thoughts on the directions we should 
be taking with our future energy policy.

    [The prepared statement of Ms. Jackson Lee follows:]
        Prepared Statement of Representative Sheila Jackson Lee
    Let me first thank Science Committee Chairman Boehlert and Ranking 
Member Gordon for holding this hearing today on the idea of an 
``Advanced Research Projects Agency for Energy'' (ARPA-E). Modeled 
after the Department of Defense's Defense Advanced Research Projects 
Agency, the goal of ARPA-E, under Congressman Gordon's proposition, 
would be to reduce U.S. foreign energy dependence by 20 percent over a 
10-year period. The idea of ARPA-E is intended to implement the 
recommendation of the National Academy of Sciences' (NAS) report Rising 
Above the Gathering Storm: Energizing and Employing America for a 
Brighter Economic Future.
    The idea of ARPA-E holds great potential, and if done right, the 
agency could yield great returns in the future. As a Member of Congress 
who represents Houston, often called the ``Energy Capital of the 
World,'' I am very interested in this matter. Through the past year, I 
have been working with many of the companies in an effort to get a 
better understanding of high gasoline prices and the many disruptions 
in production caused by Hurricanes Katrina and Rita. These now infamous 
hurricanes showed how vulnerable this country is to price spikes in our 
energy costs.
    Hurricanes Katrina and Rita, as well as the war in Iraq, increased 
energy demand from abroad. In addition, a host of other factors have 
contributed to sky-high oil prices, and increased dependence on oil 
from abroad. Crude oil prices at one point even exceeded $70 a barrel. 
Americans suffered greatly from the high cost of gasoline, at one point 
being forced to pay over $3 a gallon at the pump in many areas. And now 
that winter has arrived, the price of natural gas, and the subsequent 
cost of heating one's home, has been exceedingly high.
    The problem is further exacerbated when one considers our addiction 
to foreign oil. In President Bush's latest State of the Union address, 
he pointed out the United States' addiction to oil.
    It is due to these reasons that I am so interested in the 
possibilities ARPA-E provides. We need a proactive, concerted effort to 
change the state of our energy policy in the United States today, or 
things will only get worse. ARPA-E would support high-risk, high pay-
off research projects in energy technologies that could lead us to new 
realms of energy production, usage and efficiency. New and daring 
research must be conducted in the energy technology field; our economy 
depends on it, our security depends on it, our independence depends on 
it, and our environment depends on it. We need to be able to include 
the energy industry in the forward-thinking research opportunities that 
ARPA-E will make available. I look forward to the witnesses sharing 
their visions of an ARPA-E that could actually accomplish these goals.
    Thank you Mr. Chairman, I yield the remainder of my time.

    Chairman Boehlert. Now here we go to our witness list, and 
a very distinguished panel that we have.
    Dr. Steven Chu, Director of Lawrence Berkeley National 
Laboratory. Dr. Chu, good to have you here. Dr. David Mowery, 
William A. and Betty H. Hasler Professor of New Enterprise 
Development at the Haas School of Business, University of 
California at Berkeley. Dr. Mowery. And Ms. Melanie Kenderdine, 
Vice President, Washington Operations for the Gas Technology 
Institute. Ms. Kenderdine. Dr. Fernando Fernandez, President of 
F.L. Fernandez, Inc. Dr. Fernandez. And Dr. Catherine Cotell, 
Vice President for Strategy, University and Early Stage 
Investment at In-Q-Tel, and as someone who has served for the 
eight years on the Intelligence Committee, I know what In-Q-Tel 
is.
    Dr. Chu, you are first up. Don't be nervous when you see 
that red light go on. It is an arbitrary--we want you to try to 
summarize your statements in five minutes or so, but the Chair 
is a little bit lenient. I mean, we have some of the most 
distinguished thinkers in our country before us, and I am not 
going to limit you to 300 seconds. But the shorter your initial 
presentation is, the longer we have to pick your brains. And 
boy, that is fertile territory for us.
    Dr. Chu.

   STATEMENT OF DR. STEVEN CHU, DIRECTOR, LAWRENCE BERKELEY 
                      NATIONAL LABORATORY

    Dr. Chu. Thank you, Chairman Boehlert, Ranking Member 
Gordon, Members of the Committee.
    I am Steven Chu, Director of Lawrence Berkeley National 
Laboratory for 111/2 years. Before that time, I served at 
Stanford University in Bell Laboratories for a total of 26 
years, and I was the co-winner of the 1997 Nobel Prize in 
Physics.
    I was privileged to serve under Norman Augustine as a 
member of the committee that produced the report ``Rising Above 
the Gathering Storm.'' And I come before you today as a 
representative of the Augustine Committee, not the Department 
of Energy.
    I thank you for providing me with the opportunity to 
contribute to today's discussion on the proposal for Advanced 
Research Projects Agency-Energy, known as ARPA-E.
    The Nation needs to develop clean, safe, secure, 
sustainable energy for three reasons: our national security is 
directly linked to energy security; economic competitiveness is 
intimately tied to how much energy costs and how efficiently it 
is used; and there are serious environmental concerns 
associated with energy usage from local pollution to climate 
change.
    Because of these concerns, I believe that the energy 
problem is the single most important problem that has to be 
solved by science and technology in the coming decades. At 
present, there appear to be no magic bullets, and we need to 
follow a dual strategy. We must improve efficiencies and use 
our energy more wisely. And I will depart and say that that is 
primarily a question of regulation, taxes, fiscal policy, and 
things of that ilk, but we also must develop a diversified 
portfolio of investments to develop sustainable sources of 
energy.
    The Augustine Committee recommended the establishment of 
ARPA-E as one of 20 recommendations. They want to provide added 
opportunities to Department of Energy to develop new 
technologies to solve the energy problem. We conceived ARPA-E 
as an organization reporting to the DOE under the Secretary of 
Science that should achieve four objectives: one, bring a 
freshness and excitement to energy research that will attract 
many of our best and brightest minds, especially students and 
young researchers, including those in the entrepreneurial 
world; two, focus on creative, out-of-the-box, transformational 
research that industry cannot or will not support due to its 
high risk but where success would provide dramatic benefits for 
the Nation; three, utilize an ARPA-like organization that is 
flat, nimble, and sparse projects whose promise remains real 
should be sustained while programs whose promise has faded 
should be terminated; four, create a new tool to bridge the 
gaps between basic energy research development and industry 
innovation.
    The agency would perform no research itself but would fund 
work conducted by universities, start-ups, established firms, 
and national laboratories, and forge links between these 
research entities.
    Another goal of ARPA-E is to bring teams of the best 
researchers across departments and schools and to encourage the 
best and brightest to pursue more applied work than they would 
normally have pursued. It could also serve as a model of how to 
improve the transfer of science and technology research in 
other areas that are essential for our future prosperity.
    The Committee considered several models before deciding to 
use ARPA as a template, and I have indicated in my written 
testimony why we settled on ARPA as a guide. However, we 
believe the specific implementation is best determined by 
policy-makers in Congress and by the Department of Energy.
    Funding for ARPA-E would start at $300 million the first 
year and increase to $1 billion per year over five or six 
years. And at that point, the program's effectiveness should be 
evaluated and appropriate actions taken.
    It is critical that funding of ARPA-E not jeopardize the 
basic research supporting the Department of Energy's Office of 
Science, and I have to inject that I believe that part does do 
things right.
    The Committee's recommendations are prioritized and its top 
recommendation in the area of research is to increase funding 
for basic research by 10 percent per year over the next seven 
years. The Augustine Committee applauds the Administration's 
American Competitiveness Initiative.
    We also applaud the courageous efforts of Secretary of 
Energy, Sam Bodman, to make basic research activities a high 
priority in the Department of Energy budget. The Augustine 
report strongly recommends that support of ARPA-E come from new 
funding.
    I also note that the number one priority of our report is 
to fix K-12 science and mathematics education.
    A critical factor in ARPA-E's success is that funds be used 
to fund ideas bubbling up from the bottom. By placing ARPA-E 
under the Under Secretary of Science, the Committee believes 
that this goal can be reached and the earmarking of funds can 
be avoided.
    What research might be funded by ARPA-E?
    Here are some examples.
    The development of a new class of solar cells. Photovoltaic 
solar cells using conventional semiconductor technology are 
efficient at converting sunlight into electrical energy, but 
their fabrication costs remain too high. Organic and polymer 
solar cells can be made at low cost but have poor efficiencies 
and degrade in sunlight. One promising avenue toward 
inexpensive, efficient, and long-lasting solar cells is to 
create novel materials based on four or more elements that can 
be manufactured with thin-film technologies. Another approach 
is to create inexpensive, nano-particle devices that can use 
different nanostructures for the conversion of sunlight into 
electrical charges and for the collection of those charges. 
Another avenue worth exploring is to combine photovoltaic 
electrical generation with novel, biologically-inspired, 
electrochemistry.
    Biomass substitutes for oil. Ethanol for transportation is 
currently produced from sugar cane, corn, and other plants 
designed for food. However, the most cost-effective bio-fuels 
will come from the conversion of cellulose. If done right, bio-
fuels produced in America can have the potential of supplying 
us with enough oil substitutes to eliminate foreign imports. 
The creation of crops raised for energy will take--also take 
full advantage of our great agricultural capacity.
    ARPA-E can fund the creation of new plants by introducing 
dozens of genes into existing plants. Recently, a team of 
scientists at Berkeley Lab inserted many genes into bacteria to 
produce an extremely effective anti-malarial drug. The Gates 
Foundation has given this team $42 million to commercialize 
this technology at a target cost below 25 cents a cure. Similar 
technologies can be used to make plants self-fertilizing, 
drought-resistant, and pest-resistant.
    Research on more efficient conversion of cellulose into 
liquid fuel will yield even greater dividends. Current methods 
use high temperature, high acid processes that are very energy-
intensive. The breakdown of cellulose into ethanol is also 
accomplished with bacteria or fungi, but this process can be 
made much more efficient if improved micro-organisms are 
developed.
    I have listed several examples of what might be considered 
ARPA-E-like research. Many of these ideas cut across 
disciplines. The potential for ARPA-E, if designed and executed 
well, will yield tremendous benefit.
    Chairman Boehlert, Ranking Member Gordon, and Members of 
the Committee, thank you for the opportunity to present the 
National Academy's recommendations before you. It has been a 
privilege to working together to enable our nation to prosper 
in the 21st century. I would be glad to respond to questions.
    [The prepared statement of Dr. Chu follows:]
                    Prepared Statement of Steven Chu

Chairman Boehlert, Ranking Member Gordon, Members of the Committee,

    I am Steven Chu, Director of Lawrence Berkeley National Laboratory. 
Prior to my current job, I was at Stanford University for 17 years and 
at AT&T Bell Laboratories for nine years. I was the co-winner of the 
1997 Nobel Prize in Physics.
    I was privileged to serve under Norman Augustine as a member of the 
National Academy of Sciences, National Academy of Engineering, and 
Institute of Medicine's Committee on Prospering in the Global Economy 
of the 21st Century that produced the report Rising Above the Gathering 
Storm: Energizing and Employing America for a Brighter Economic Future. 
I come before you today as a representative of the Augustine Committee, 
and not the Department of Energy.
    Thank you for providing me with the opportunity to contribute to 
today's discussion on the utility of the committee's proposal for the 
Advanced Research Projects Agency-Energy (known as ARPA-E).

INTRODUCTION

    We live in a truly magical time. With the flick of a finger, the 
power of 10 horses flows from a small wire in the wall of our homes to 
clean our carpets. We go to the local market under the pull of hundreds 
of horses and fly across our continent with tens of thousands of them. 
Our homes are warm in the winter, cool in the summer and lit at night. 
We live well beyond the dreams of Roman emperors.
    What has made all of this possible is our ability to exploit 
abundant sources of energy. The worldwide consumption of energy has 
nearly doubled between 1970 and 2001. By 2025, it is expected to 
triple. The extraction of oil, our most precious energy source, is 
predicted to peak sometime in 10 to 40 years, and most of it will be 
gone by the end of this century. What took hundreds of millions of 
years for nature to make will have been consumed in 200 years. We have 
abundant forms of fossil fuel such as coal, shale oil, and tar sands 
that will last for hundreds of years. However, in my opinion, if the 
world substantially increases the generation of greenhouse gases by 
relying heavily on fossil fuels, we run the risk of causing disruptive 
climate change.
    The Nation needs to develop clean, safe, secure, and sustainable 
energy for three reasons:

        1.  Our energy security is directly linked to national 
        security.

        2.  Economic competitiveness is intimately tied to how much 
        energy costs, and how efficiently it is used.

        3.  There are serious environmental concerns associated with 
        energy usage from local pollution to climate change.

    Because of these concerns, I believe that the energy problem is the 
single most important problem that has to be solved by science and 
technology in the coming decades. At present, there appear to be no 
magic bullets to solve the energy problem. While efficiencies play a 
huge role in defining how much energy we consume, we must also have a 
diversified portfolio of investments to develop sustainable sources of 
energy.

ARPA-E

    The committee that developed the report, Rising Above the Gathering 
Storm, included amongst its 20 recommended action steps, the 
establishment of the Advanced Research Projects Authority-Energy (ARPA-
E).
    The committee intends ARPA-E to provide a new field of opportunity 
to the Department of Energy as it works to develop new technologies to 
supply this nation and the world, with safe, clean, affordable, secure, 
and sustainable energy. We simply must find energy supplies that will 
not degrade our environment. If we do not do this, there will be no 
future prosperity.
    We must take concerted action and make the investments necessary to 
enlist our most talented researchers and innovators. Our committee, 
therefore, conceived ARPA-E as an organization reporting to the DOE 
Under Secretary for Science that can achieve four objectives:

        1.  Bring a freshness, excitement, and sense of mission to 
        energy research that will attract many of our best and 
        brightest minds--those of experienced scientists and engineers, 
        and, especially, those of students and young researchers, 
        including those in the entrepreneurial world.

        2.  Focus on creative ``out-of-the-box'' transformational 
        energy research that industry by itself cannot or will not 
        support due to its high risk but where success would provide 
        dramatic benefits for the Nation.

        3.  Utilize an ARPA-like organization that is flat, nimble, and 
        sparse, capable of sustaining for long periods of time those 
        projects whose promise remains real, while phasing out programs 
        that do not prove to be as promising as anticipated.

        4.  Create a new tool to bridge the gap between basic energy 
        research, and development/industrial innovation.

    The agency would itself perform no research, but would fund work 
conducted by universities, start-ups, established firms and national 
laboratories. Although the agency would be focused on energy issues, it 
is expected that its work (like that of DARPA or NIH) will have 
important spin-off benefits, including aiding in the education of the 
next generation of researchers.
    Another goal of ARPA-E is to bring teams of the best researchers 
across departments and schools to get the best results for the Nation. 
ARPA-E would provide an incentive to encourage the best and brightest 
researchers to pursue more applied work than they would normally 
pursue. It could also serve as a model for how to improve the transfer 
of science and technology research in other areas that are essential to 
our future prosperity.
    The committee considered several models before deciding to focus on 
energy and to use ARPA as a template. Among these were In-Q-Tel (which 
engages the entrepreneurial community with technologies of potential 
interest to the intelligence community), HSARPA (the Department of 
Homeland Security Version of ARPA), SEMATECH (a jointly funded research 
venture of the Federal Government and the semiconductor industry), 
Advanced Technology Program (ATP), Small Business Innovation Research 
program (SBIR), Civilian Technology Corporation (recommended in a 
previous 1992 National Academies report chaired by Harold Brown), and 
Discovery Innovation Institutes (recommended by a 2005 National 
Academies report chaired by James Duderstadt).
    In-Q-Tel is a fine model for its mission. However, the objective 
set out by the Gathering Storm report is to perform research and to 
sponsor the early development of transformational new approaches to 
energy. In-Q-Tel operates in a different context. Its goal is not basic 
research, but the application of those ideas already in business and to 
act as a bridge from one industry to another. On the other hand, the 
goal of ARPA-E is to conduct applied research and to act as a bridge 
from basic research to development of new technologies.
    Also, In-Q-Tel has one customer, the Intelligence Community, with a 
well-specified set of mission activities that they want to accomplish 
differently or better. Developing new energy technologies is an 
earlier-stage, much less focused activity. If ARPA-E is successful, 
then technology transition will be from the research laboratory to 
small and large companies, not into the government. Arguments compel 
the conclusion that DARPA is better model for ARPA-E where the 
challenge is to transform U.S. energy dependence.
    Three congressional bills, H.R. 4435, S. 2196, and S. 2197 call for 
the establishment of ARPA-E. Although the National Academies do not 
endorse legislation, we can say that each of these bills is harmonious 
with the general principles outlined for ARPA-E in the Gathering Storm 
report. We believe the specifics of implementation are best determined 
by policy-makers in Congress and at the Department of Energy.

FUNDING OF ARPA-E

    Funding for ARPA-E would start at $300 million the first year and 
increase to $1 billion per year over 5-6 years, at which point the 
program's effectiveness would be evaluated and any appropriate actions 
taken.
    In funding ARPA-E, it is critical that its funding not jeopardize 
the basic research supported by the Department of Energy's Office of 
Science. The committee's recommendations are prioritized and its top 
recommendation in the area of research is to increase the funding for 
basic research by 10 percent per year over the next seven years. The 
Augustine Committee applauds the Administration's American 
Competitiveness Initiative, particularly the courageous efforts of 
Secretary of Energy Samuel Bodman, to make basic research activities a 
high priority in the Department of Energy budget .The Augustine Report 
strongly recommends the support of ARPA-E come from new funding.
    I also note that the number one priority in our report is to fix K-
12 science and mathematics education.
    A critical factor in ARPA-E's success is that the funds be used as 
wisely as possible to fund the best ideas. These ideas should bubble-up 
from the bottom and should not be directed from the top. By placing 
ARPA-E under the Under Secretary of Science, the committee believes 
that this goal can be reached and earmarking of funds can be avoided.

WHAT RESEARCH MIGHT ARPA-E FUND?

    Some examples of what ARPA-E might fund include:

1. The development of a new class of solar cells.

    Photovoltaic solar cells using semiconductor technology can be very 
efficient at converting sunlight into electrical energy, but the 
fabrication cost remains too high. Organic and polymer solar cells can 
be made at low cost, but the efficiencies are low and existing 
materials degrade in sunlight. One promising avenue towards 
inexpensive, efficient and long lasting solar cells is to create novel 
materials based on multiple elements that can be manufactured with 
thin-film technologies. Another approach is to create nano-particle 
devices (distributed junction solar cells) that use different 
nanostructures for the conversion of sunlight into charge carriers and 
for the collection of those charges onto electrodes.

2. Biomass substitutes for oil.

    The ethanol for transportation is currently produced from sugar 
cane, corn or other plants. However, the most cost effective bio-fuels 
will come from the conversion of cellulose into chemical fuel. When the 
fuel is burned, CO2 is released into the atmosphere, but the 
overall cycle can, in principle, be carbon neutral. The creation of 
crops raised for energy will also take full advantage of our great 
agricultural capacity.
    ARPA-E can fund the creation of new plants to be grown for energy 
by incorporating a number of genes are introduced into plants. 
Recently, a team of scientists at Lawrence Berkeley National laboratory 
inserted many genes into bacteria to produce an extremely effective 
anti-malarial drug. The Gates Foundation has given this team a $42 M 
grant to commercialize the technology so that the drug can be made 
available to the developing world. Similar technology can be used to 
make plants self-fertilizing, drought and pest resistant. Note that 
about 25 percent of the energy input in growing corn comes from 
fertilizer, which is made from ammonia derived from natural gas.
    Research on more efficient conversion of cellulose into liquid fuel 
would also yield great dividends. Current methods use the high 
temperature/high acid processes that are very energy intensive. The 
breakdown of cellulose into ethanol is also accomplished with bacteria 
or fungi, but this process can be made much more efficient if the 
micro-organisms are modified with these methods.

COMMITTEE'S QUESTIONS ABOUT ARPA-E

    In your request asking me to testify at this hearing, you asked me 
to respond to three questions about ARPA-E. I will now address each 
question.

1)  Should ARPA-E be designed more to foster directed basic research or 
to get products into the marketplace? If the focus were basic research, 
what steps would ARPA-E or other entities have to take to affect the 
marketplace? If the focus were technology transfer, what specific 
barriers would ARPA-E be designed to overcome, how would it do so, and 
would that be the most effective way that government could transform 
the energy marketplace?

    The purpose of ARPA-E is not to get products into the marketplace, 
but to conduct the research necessary to transform the energy 
marketplace by creating platform technologies. ARPA-E would identify 
and support the science and technology critical to our nation's energy 
infrastructure and act as the bridge between the basic research, 
predominantly supported by the Office of Science and the more applied 
areas.
    The committee believes that there are great researchers and great 
ideas out there which are not currently being utilized to address the 
Nation's energy challenge. Because the benefits of long-term energy 
research would accrue to all, it is not necessarily beneficial for one 
company to make the long-term investment needed for a transformational 
technology today.
    Historically, this role was served by the great industrial labs 
such as Bell Labs which created devices such as the transistor. In the 
1930s, there was a need to develop a low-power, reliable, solid-state 
replacement for the vacuum tube used in telephone signal amplification 
and switching. Materials scientists had to invent methods to make 
highly pure germanium and silicon and to add controlled impurities with 
unprecedented precision. Theoretical and experimental physicists had to 
develop a fundamental understanding of the conduction properties of 
this new material and the physics of the interfaces and surfaces of 
different semiconductors. By investing in a large-scale assault on this 
problem, the transistor was invented in 1948, less than a decade after 
the discovery that a semiconductor junction would allow electric 
current to flow in only one direction. Fundamental understanding was 
recognized to be essential, but the goal of producing a vacuum tube 
substitute was kept front-and-center. Despite this focused approach, 
fundamental science did not suffer: a Nobel prize was awarded for the 
invention of the transistor. During this and the following efforts, the 
foundations of much of semiconductor-device physics of the 20th century 
were laid.
    ARPA-E could fund research at universities start-ups, established 
firms and national laboratories for similar focused goals. ARPA-E may 
be especially useful in funding projects whose success will require 
coordinated efforts from several fields of science. It would also meet 
the Nation's need for transformational, high-risk, high payoff R&D that 
would be a challenge for today's electric utilities, petroleum 
companies, and large energy equipment manufacturers to address and 
which are not very attractive to the entrepreneurial world.

2)  What kinds of entities should receive funding from ARPA-E? Should 
the National Laboratories be able to receive funding from ARPA-E? How 
should the work funded by ARPA-E differ from work funded under existing 
DOE basic and applied research programs? How could Congress structure 
ARPA-E to ensure that ARPA-E did not end up carrying out programs that 
are substantially similar to those already in DOE's portfolio?

    The research work supported by ARPA-E would fall between DOE's 
Office of Science and its energy technology programs such as the 
offices of Energy Efficiency & Renewable Energy, Nuclear Energy, 
Science, and Technology, Fossil Energy, Electricity Delivery and Energy 
Reliability. By its nature, ARPA-E would fund activities more applied 
than DOE basic research programs and too basic for its applied research 
programs. ARPA-E would also be looking for ways to harness basic 
science discoveries that are supported by other agencies.
    Some key differences between ARPA-E and existing DOE organizations 
include:

          Small staff of smart, vigorous, creative minds with 
        deep knowledge in relevant research areas hired from the best 
        performing organizations in energy research and advanced energy 
        industry.

          Creative, challenging programs that attract the 
        brightest researchers in industry and the university to work on 
        them.

          Programs designed with no constraint to fund existing 
        organizations.

          Staff would also rotate on a regular basis as is the 
        case at DARPA today to ensure that new ideas are constantly 
        part of the mix. Staff's performance would be evaluated on 
        their basis to identify and support transformative research.

          Programs with clear and challenging goals. For 
        example, the DARPA speech recognition program started with a 
        clearly defined goal such as recognizing a) continuous speech 
        (words not disjointed), b) spanning a 1,000 word vocabulary, c) 
        using conventional microphones, and d) performing recognition 
        in real time.

          Programs defined to perform R&D of the multiple, 
        complementary elements that enable new energy approaches to 
        eventually become commercialized.

          Objective is breakthrough, new workable ideas--not 
        incremental research.

          Flat management.

          Jumpstarts the adoption of a technology by inserting 
        prototypes to demonstrate effectiveness. For example, it was 
        DARPA not the military, that developed the Predator, an 
        unpiloted air vehicle that was used in theatre in the 1990s and 
        greatly accelerated the adoption of such vehicles for 
        surveillance and reconnaissance.

          Merit review of proposals.

          Operates with special authorities that enable the 
        hiring of the needed talent, and that permit the agency to 
        rapidly and nimbly make investments.

    The criteria used to select proposals for research funding would be 
very important. Among them could be criteria that would describe how 
the proposed research is similar or different from existing research 
activities that DOE (or other organizations) is funding.
    Another critical criteria would be that the research be 
transformational--not just incremental progress on existing ideas.
    Anyone could compete for funding from ARPA-E including 
universities, industry, businesses, and national laboratories or 
ideally, a consortia of these organizations. Those managing the process 
would need to be very independent and not favor one group over another.

3)  Is it credible to develop a solution to U.S. energy needs based on 
the Defense Advanced Research Projects Agency (DARPA), given that DARPA 
is developing ideas for a market in which the government itself is the 
primary customer and cost is not a primary concern?

    The agency's basic administrative structure and goals would mirror 
those of DARPA, but there would be some important differences. DARPA 
exists mainly to provide a long-term ``break-through'' perspective for 
the armed forces. As previously stated, DOE already has excellent 
mechanisms for supporting long-term fundamental research in the Office 
of Science and shorter-term research in its other branches. ARPA-E 
would identify and support the science and technology critical to our 
nation's energy infrastructure by focusing on problem-driven research. 
It also could offer several important national benefits:

          Promote research in the physical sciences, 
        engineering, and mathematics.

          Create a stream of human capital to bring innovative 
        approaches to areas of national strategic importance.

          Turn cutting-edge science and engineering into 
        technology for energy and environmental applications.

          Accelerate innovation in both traditional and 
        alternative energy sources and in energy-efficiency mechanisms.

          Foster consortia of companies, colleges and 
        universities, and laboratories to work on critical research 
        problems.

    Although DOD is the primary direct customer for most successful 
DARPA-developed technologies, i.e., the military procures the ultimate 
systems, and devices, DOE would not in this sense be the direct 
customer for ARPA-E. In other words, it is really the defense industry 
that is the customer for DARPA who then in turn uses its research to 
develop products it hopes is useful for DOD. DOD rarely builds products 
itself. Similarly, the energy industry could use the results of ARPA-E 
to similarly turn its research to develop technologies for itself, 
utilities, and the general public.
    There are, however, vast potential world markets for successful new 
technologies that generate and distribute safe, clean, affordable, 
secure, and sustainable energy. Thus capital for proven technologies 
should not be a problem and an organization such as In-Q-Tel (which 
serves as a venture capital firm for the intelligence community) may or 
may not be necessary.
    ARPA-E could be a catalyst to drive technologies into industry. It 
can take early high risk positions and access a talent base that 
generally is not available in the industry. Some ARPA-E projects would 
be conducted by industry, and would help to expand high-tech 
capabilities within companies, just as has been the case of DARPA 
projects in the defense industry.
    Our committee did not believe it appropriate for us to specify the 
organization and mission of ARPA-E in great detail. We believe that 
must be worked out by the Secretary of Energy and the Under Secretary 
for Science in consultation with experts from the scientific and 
engineering communities. Defense visionaries who realized that the 
military had to reach out to new communities for the technologies that 
would be required to counter the rapidly changing threats of the post-
Sputnik era established the original ARPA in the DOD. It was enormously 
successful. We believe that ARPA will provide the right general 
framework on which to design ARPA-E. It is a proven model.

CLOSING COMMENTS

    The potential payoff of ARPA-E through engaging new researchers, 
exciting a new generation to confront the looming energy crisis, and 
operating with an agility to involve scientists and engineers who 
otherwise might not contribute to meeting our energy and environmental 
challenges is great. ARPA-E can be goal-oriented, flexible, yet 
possible to start, stop, and sustain programs and projects according to 
their promise and performance.
    Chairman Boehlert, Ranking Member Gordon, and Members of the 
Committee, thank you for the opportunity to National Academies report 
Rising Above the Gathering Storm. It is a privilege to work together to 
enable our nation to prosper in the 21st century.
    I would be glad to respond to any questions.

                        Biography for Steven Chu
    Steve Chu, 57, became Berkeley Lab's sixth Director on August 1, 
2004. A Nobel Prize-winning scholar and international expert in atomic 
physics, laser spectroscopy, biophysics and polymer physics, Dr. Chu 
oversees the oldest and most varied of the Department of Energy's 
multi-program research laboratories. Berkeley Lab has an annual budget 
of more than $520 million and a workforce of about 4,000.
    His distinguished career in laboratory research began as a 
postdoctoral fellow in physics at the University of California's 
Berkeley campus from 1976-78, during which time he also utilized the 
facilities of Berkeley Lab. His first career appointment was as a 
member of the technical staff at AT&T Bell Laboratories in Murray Hill, 
N.J. where, from 1978-87, his achievements with laser spectroscopy and 
quantum physics became widely recognized. During the last four years 
there he was Head of the Quantum Electronics Research Department, 
during which time he began his groundbreaking work in cooling and 
trapping atoms by using laser light. In 1987, he became a professor in 
the Physics and Applied Physics Departments at Stanford University, 
where he continued his laser cooling and trapping work.
    This work eventually led to the Nobel Prize in Physics in 1997, an 
honor he shared with Claude Cohen-Tannoudji of France and United States 
colleague William D. Phillips. Their discoveries, focusing on the so-
called ``optical tweezers'' laser trap, were instrumental in the study 
of fundamental phenomena and in measuring important physical quantities 
with unprecedented precision.
    At the time, Dr. Chu was the Theodore and Francis Geballe Professor 
of Physics and Applied Physics at Stanford University, where he 
remained for 17 years as highly decorated scientist, teacher and 
administrator. While at Stanford, he chaired the Physics Department 
from 1990-93 and from 1999-2001.
    He is a member of the National Academy of Sciences, American 
Philosophical Society, American Academy of Arts and Sciences, Academia 
Sinica, and Honorary Lifetime member, Optical Society of America. He is 
also a foreign member of the Chinese Academy of Sciences and the Korean 
Academy of Sciences and Technology.
    Dr. Chu has won dozens of awards in addition to the Nobel Prize, 
including the Science for Art Prize, Herbert Broida Prize for 
Spectroscopy, Richtmeyer Memorial Prize Lecturer, King Faisal 
International Prize for Science, Arthur Schawlow Prize for Laser 
Science, and William Meggers Award for Laser Spectroscopy. He was a 
Humboldt Senior Scientist and a Guggenheim Fellow and has received six 
honorary degrees.
    Born in St. Louis and raised in New York, Dr. Chu earned an A.B. in 
mathematics and a B.S. in physics at the University of Rochester, and a 
Ph.D. in physics at UC-Berkeley. He maintains a vigorous research 
program and directly supervises a team of graduate students and 
postdoctoral fellows. He is author or co-author of more than 160 
articles and professional papers, and over two dozen former members of 
his group are now professors at leading research universities around 
the world.

    Chairman Boehlert. Thank you, Dr. Chu.
    Dr. Mowery.

STATEMENT OF DR. DAVID C. MOWERY, WILLIAM A. & BETTY H. HASLER, 
    PROFESSOR OF NEW ENTERPRISE DEVELOPMENT, HAAS SCHOOL OF 
         BUSINESS, UNIVERSITY OF CALIFORNIA AT BERKELEY

    Dr. Mowery. Mr. Chairman, Mr. Gordon, Members of the 
Committee, I appreciate the opportunity to appear and discuss 
proposals for the Energy ARPA that have been embodied in 
legislation--legislative proposals and in the Augustine 
Committee report.
    I confess to some skepticism about the ARPA-E model, as it 
applies to energy R&D, while at the same time, I share many of 
the goals embodied in the Augustine Committee report. It seems 
to me, the biggest question concerning the proposal for an 
Energy ARPA really is the--concerns the problem within the 
energy R&D system that this entity is--seeks to solve. I share 
the concerns expressed by the NAS panel and other expert groups 
over the disparate growth in federal funding for biomedical and 
physical sciences R&D during the past two decades, and I think 
a strong case could be made for increased federal investment in 
energy efficiency, conservation, and alternative energy 
programs in the face of essentially flat funding since the 
early 21st century. But many of these concerns, if not all of 
them, can be--in my view, can be addressed through mechanisms 
other than the establishment of a new entity within DOE. And I 
think the proposal for an Energy ARPA overlooks some critical 
features of energy R&D, some of which were eluded to by 
Chairman Boehlert, that make the DARPA model less applicable to 
the field of energy R&D.
    So let me just kick off the areas in which I agree with the 
panel's recommendations and then spend more of my time on the 
areas in which I disagree, in hopes of sparking some debate.
    I think that the proposals for expanded R&D in energy--in 
alternative energy R&D are very positive. I served on another 
National Academy of Sciences panel that assessed the value of 
DOE investments in alternate energy, energy conservation, and 
energy efficiency programs, and our consensus was that the 
returns to these investments was positive. And we felt that the 
Department of Energy had, overall, done an effective job of 
managing these.
    I think, also, that the spirit of the Augustine Committee's 
recommendations for energy R&D and, more broadly, for retooling 
the national investment, particularly the federal investment in 
R&D, on extramural research with a focus on the physical 
sciences and engineering is a strong positive. I note, as well, 
that the expanded funding of research in these areas in higher 
education, in particular, embodies a very effective technology 
transfer mechanism, the movement of people to and from the 
university. And I think that that is an important area for 
expansion and continued activity.
    Let me move to the areas in which I disagree with the 
utility of the DARPA model for energy.
    The first, and I think the most important, is the demand 
side. I--it seems to me that the area of energy R&D is one in 
which much of the benefit, if not all of the benefit associated 
with energy R&D, is embodied in the adoption of these 
technologies. The technologies yield benefits only to the 
extent they are applied broadly within the civilian economy. 
Moreover, broad application of these new technologies often 
contributes and accelerates their improvement in use. What we 
know about the first version of many technologies, in energy 
and elsewhere, is that they tend to be rather user-unfriendly, 
they, in many cases, are less reliable, and are certainly 
oftentimes far more costly. Over time, as users learn to 
operate, maintain, and improve these technologies in the field 
and as producers incorporate feedback from users, costs drop 
and performance improves.
    The demand side in the energy R&D field seems, to me, is 
the big--is a big problem. It is not the only problem, but it 
certainly is a very large problem precisely because federal 
policy fails to create the kinds of market signals to both 
support more widespread adoption by users and federal policy, 
by failing to create those market signals, also tends to 
discourage private sector investment in the commercialization 
of the technologies already developed.
    So we have, I think, a serious issue on the demand side. 
And this is clearly something that DARPA and the Defense 
Department generally have in their quiver of policy weapons 
that an ARPA-E really doesn't. And as the Augustine panel's 
report acknowledges, the absence of a strong procurement lever 
to support the adoption and lower the costs and improve the 
performance of technologies in use is, I think, an important 
failing in energy R&D that an ARPA-E cannot overcome.
    A second area in which I think the ARPA-E proposal is, 
perhaps, a bit unrealistic is, and here I am going to opine a 
bit on politics to a group of experts, but nevertheless, the 
political environment for energy R&D is clearly much different 
from the environment within which DARPA achieved a great deal 
of success in at least two respects. DARPA had a clearly 
identified client and mission, the uniformed services and the 
mission on which there was fairly broad political consensus of 
improving and sustaining U.S. national security. That is not to 
say that politics did not enter. That is not to say that 
clashes within the Defense Department over DARPA programs did 
not exist. Nevertheless, there was a very clearly defined 
mission and a very clearly defined client, if you will, for the 
research.
    I think this really is lacking on the energy side, making 
energy R&D far more complex. We have many more user groups with 
often clashing interests, as is well known, certainly, to this 
panel and to other witnesses. And we also have a more unstable 
political environment. Both the economic environment, the price 
of energy fluctuates over time, and the priorities, the 
political priorities and goals of energy R&D programs shift 
over time. That further destabilizes, if you will, the 
environment within which users adopt and prospective investors 
commit funds to commercialization.
    So let me wrap up here.
    First, I want to express my appreciation, and I think we 
all owe a great debt to the National Academy panel, to its 
members and its staff, for putting together a very ambitious 
report that synthesizes a great deal of information and makes a 
number of important recommendations. And while I don't agree 
with all of the recommendations in their totality, I think the 
contribution of this panel's report to sparking and catalyzing 
a debate over issues that, for too long, have been frozen in 
the political debate is extremely important. And I think we are 
all indebted to them for that.
    So thank you, Mr. Chairman, Mr. Gordon, and I am happy to 
answer your questions.
    [The prepared statement of Dr. Mowery follows:]
                 Prepared Statement of David C. Mowery
    I appreciate the opportunity to appear before the Committee to 
discuss the legislative proposals for an ``ARPA-E'' that will support 
R&D on energy technologies that can reduce U.S. dependence on foreign 
suppliers of oil, reduce pollution, and reduce emissions of other 
materials that contribute to global climate change. Overall, I agree 
with the NAS panel's goals in recommending such a program, although I 
am skeptical about the usefulness of a ``DARPA model'' for energy R&D.
    The Federal Government (and agencies including but not restricted 
to DARPA) has a long history of supporting R&D that has contributed to 
the introduction and deployment of technologies ranging from the 19th-
century telegraph to civilian aircraft, hybrid corn, and the Internet. 
Moreover, federal R&D programs in energy efficiency and fossil energy 
between 1978 and 2000 produced significant economic, environmental, and 
other benefits.\1\ This long history raises some important questions 
for the design of an ARPA-E.
---------------------------------------------------------------------------
    \1\ See Energy Research at DOE: Was It Worth It?, National Research 
Council Committee on Benefits of DOE R&D on Energy Efficiency and 
Fossil Energy (National Academy Press, 2001).
---------------------------------------------------------------------------
    The biggest question concerning the proposal for an ARPA-E concerns 
the problem that this entity seeks to solve. I share the concerns 
expressed by the NAS panel and other expert groups over the disparate 
growth in federal funding for biomedical and physical-sciences R&D 
during the past two decades, and a case can be made for increased 
federal investment in energy efficiency and conservation programs in 
the face of flat funding since fiscal 2001. But these concerns can be 
addressed through mechanisms other than the establishment of a new 
entity within DOE. And the proposal for an ARPA-E overlooks some 
critical features of energy R&D that make the ``DARPA model'' less 
tenable in this field.

1. Who should perform the R&D funded by ARPA-E?

    The NAS panel's report emphasized the importance of ``rebalancing'' 
the national R&D ``portfolio.'' A combination of factors (including the 
end of the Cold War) has produced a significant shift in the federal 
R&D budget in favor of biomedical research. The trends are well known, 
but bear repeating: federal funding for life sciences R&D grew by 6.2 
percent per year from 1982 to 2003, outstripping annual growth rates in 
federal funding for engineering R&D (2.2 percent) and physical sciences 
R&D (one percent). ``Life sciences'' R&D grew from 41 percent of 
federal R&D funding in fiscal 1994 to nearly 54 percent by fiscal 2003, 
and the share of federal R&D spending accounted for by ``environmental 
sciences, physical sciences, mathematics, and engineering'' R&D shrank 
from more than 50 percent to less than 40 percent in the same 
period.\2\ In addition, most observers suggest that the ``time 
horizon'' of federal and private-sector investments in physical-
sciences and engineering R&D has shrunk. The share of overall Defense 
Department R&D devoted to ``basic'' research (``6.1'') declined from 
more than five percent in fiscal 1965 to just over 2.5 percent in 
fiscal 2003.
---------------------------------------------------------------------------
    \2\ See also Engineering Research and America's Future: Meeting the 
Challenges of a Global Economy (National Academies Press, 2005).
---------------------------------------------------------------------------
    A more balanced U.S. R&D portfolio should include greater public 
funding for R&D in the physical sciences and engineering undertaken by 
extramural performers, notably industry and higher education. Expanded 
funding for university R&D in particular could increase the supply of 
U.S. citizens trained in these fields and attract the ``best and 
brightest'' from other nations to conduct research and obtain long-term 
employment in the United States. Moreover, U.S. research universities 
transfer knowledge and technology very effectively through the 
placement of graduates in industrial and academic positions.
    Although many components of the DOE laboratory system are closely 
linked with university education and research, the NAS panel rightly 
emphasizes the importance of extramural R&D performers (defined in this 
case as entities other than the DOE labs) in its description of ARPA-E. 
In fiscal 2003, only nine percent of DOE's total R&D budget (including 
defense programs) went to research universities, while 16 percent was 
allocated to industry. Implementing new programs that follow the spirit 
of the recommendations in the NAS panel report requires an increase in 
the share of the DOE R&D budget that is allocated to extramural R&D 
performers.
    It is not clear, however, that an ARPA-E is necessary to achieve 
this goal. For example, DOE might award grants on a peer-reviewed basis 
to university research teams that commit to using DOE laboratory 
facilities, incorporating competition among DOE laboratories to attract 
high-potential academic research teams. Alternatively (and following 
the example of DARPA in information technology), DOE could commit to 
multi-year support for ``Centers of Excellence'' in interdisciplinary 
energy R&D at universities through a competitive process. Yet another 
model for expanding financial support for academic research in the 
physical sciences and engineering is the Engineering Research Centers 
established at many universities by the National Science Foundation.

2. What types of R&D will ARPA-E focus on?

    The NAS panel report's description of the ARPA-E research agenda 
suggests that this entity will support R&D on ``generic'' technologies 
that are slightly ``downstream'' from basic research, yet are 
sufficiently long-term and risky that private industry will not fund 
them. DARPA's research agenda included both long-term and more applied 
work, but more discussion is needed on exactly what ``gap'' the ARPA-E 
research agenda will fill. As I note below, one of the most significant 
obstacles to the translation of fundamental research advances into 
energy-conserving applications is the lack of incentives for users to 
adopt such technologies.
    Another question for an ARPA-E concerns funding levels. Where does 
the proposed first-year funding of $300 million for ARPA-E fit into the 
President's requested increase of $391 million for non-defense DOE R&D 
in fiscal 2007?\3\ Would the $300 million in first-year funding for 
ARPA-E consist entirely of ``new money'' in addition to the $391 
million in increases for R&D requested in the FY 2007 budget document, 
or would this new entity be funded from a reallocation within the DOE 
R&D budget? Since one goal of an ARPA-E appears to be a substantial net 
increase in DOE support for extramural research, the answers to these 
questions are crucial.
---------------------------------------------------------------------------
    \3\ This estimate is taken from the AAAS 2/24/06 R&D funding report 
for FY 2007 DOE R&D, and includes ``facilities'' funding in addition to 
R&D. See www.aaas.org/spp/rd; accessed March 7, 2006.

3.  Is R&D investment a sufficient condition for advancing U.S. energy 
---------------------------------------------------------------------------
goals?

    Along with other expert groups, the Committee on Prospering in the 
Global Economy of the 21st Century highlighted the urgency and 
significance of energy-related challenges faced by the United States. 
The development of new technologies is an essential step in addressing 
these challenges. But realizing the benefits of these technologies 
requires more than their development by public- or private-sector 
researchers; widespread adoption of these technologies is necessary.
    Indeed, more rapid adoption by users of new technologies can 
accelerate innovation, as users learn to operate, maintain, and improve 
them (the Internet in the United States is a classic example). And the 
need for widespread adoption highlights an important issue for ARPA-E 
that DARPA did not face: the creation of a market for new technologies. 
Federal programs supporting technological innovation have proven 
especially effective when funding for R&D was combined (often through 
different programs or policies) with complementary policies supporting 
the adoption of the innovations flowing from publicly funded R&D.
    The Defense Department has been an important early purchaser of new 
technologies ranging from semiconductor components to computer hardware 
since the late 1940s. This ``lead purchaser'' role had several 
important effects: (1) the military market generally paid premium 
prices, enabling new suppliers to quickly achieve profitability; (2) 
the military market was sufficiently large that suppliers could exploit 
learning in production to reduce their manufacturing costs and 
eventually, lower the prices on new technologies sufficiently to make 
them competitive in civilian markets; and (3) suppliers used military 
markets to improve the design and ease of use of new products in ways 
that further enhanced their attractiveness to civilian purchasers. The 
procurement budget of the Defense Department aided in the translation 
of DARPA-supported military innovations into technologies that 
penetrated large civilian markets, increasing demand and accelerating 
improvements in the reliability and price-competitiveness of these 
technologies.
    The translation of DOE-funded innovations (whether funded by an 
ARPA-E or another entity) into technologies that are deployed 
extensively within the U.S. economy will require cost reduction and 
quality improvement of these innovations. Moreover, this 
``translation'' will rely on investments from private firms and 
entrepreneurs seeking to profit from the commercialization of these 
technologies. DOE-supported R&D therefore should be complemented by 
policies that support end-user demand for these new technologies. 
Examples of such policies include mileage standards for automobiles and 
energy-efficiency requirements for other technologies; taxes on the 
carbon content of energy sources; and other mechanisms that create 
market signals to guide and create incentives for the long-term 
investment decisions of entrepreneurs and the purchase decisions of 
consumers.
    Indeed, policies supporting the adoption of existing technologies 
could produce significant near-term improvements in U.S. energy 
efficiency and, potentially, reductions in pollutants. Wider adoption 
of these technologies would contribute to more rapid incremental 
improvements in their reliability and cost-effectiveness. And the 
cumulative effect of such incremental improvements can be very large 
indeed.

4. ARPA-E faces a very different political environment than DARPA

    Another contrast with ARPA-E is DARPA's single customer and clear 
mission. Although its relationship with the uniformed services has not 
been free of conflict, DARPA enjoyed relatively close links with a 
clear primary ``customer.'' In addition, of course, the broad mission 
of DARPA--enhancing U.S. military capabilities--was widely accepted 
across the political spectrum. By comparison, the energy policy arena 
in which an ARPA-E would be a central actor is characterized by a 
higher level of political conflict over ends and means, as well as a 
large number of user constituencies whose needs and priorities may be 
mutually inconsistent.
    Investment in the commercialization of new technologies takes 
substantial funds and substantial time. Private-sector investment will 
respond to market-based incentives created by federal policy only to 
the extent that these federal policies are perceived to be credible, 
i.e., lasting and reasonably stable. Partly because of wide swings in 
energy prices and partly because of a lack of political consensus on 
ends and means, U.S. energy policy has experienced frequent change in 
goals, political saliency, and program content. Policy instability has 
raised the risks of investments by private firms in commercializing 
alternative energy technologies, and almost certainly has reduced the 
flow of capital into R&D and commercialization in these fields. 
Although one cannot describe U.S. defense R&D policy as 
``nonpolitical,'' the fact remains that the higher level of political 
consensus on external threats and responses to them since the 1950s has 
meant that DARPA has operated in a more stable policy environment that 
enhanced the credibility of its policies and meant that public 
investments effectively complemented private-sector funding.
    It seems likely that the political conflicts that characterize U.S. 
energy policy will remain significant and that the instability in 
policy will persist. Such policy instability compounds the 
technological risks faced by an ARPA-E and will complicate the 
development of complementary policies to support the adoption of 
energy-efficient technologies.

Conclusion

    I support the broad goals of the Committee on Prospering in the 
Global Economy of the 21st Century in recommending an ARPA-E. I believe 
that expanded federal investment in long-term R&D that supports the 
training of tomorrow's scientists and engineers is needed, and I share 
the Committee's view that the energy field is one in which the public 
interest would be well served by greater investment in new 
technologies. I also believe that the track record of federal R&D 
investments in the energy field, like many other fields of technology, 
is a mixed but on the whole positive one. But I am not convinced by the 
Committee's arguments that a new entity within the Department of Energy 
is the best means for achieving these goals.
    On balance, I believe that a stronger case for an ARPA-E should be 
based on a clearer analysis of the deficiencies in the current energy 
R&D structure that includes more detail on how an ARPA-E will address 
these problems. And as I noted above, there are very important 
differences between DARPA and the proposed ARPA-E (some of which 
reflect the differences in their missions) that seem likely to impede 
the effectiveness of an ARPA-E.
    The members (and staff) of the NAS panel should be congratulated 
for producing an important report (and doing so very quickly) that 
contains numerous policy recommendations in addition to that for an 
ARPA-E that merit serious consideration by Members of Congress. It is 
especially important for members of the Science Committee to attend to 
the NAS panel's overall analysis of the health of the U.S. innovation 
system. Actions that reduce federal support for basic research, such as 
potential cutbacks in NASA space science programs, or policies that may 
reduce access to higher education, such as cutbacks in federal support 
for student higher-education loans, do not advance the goals of Rising 
Above the Gathering Storm. All decisions concerning the allocation of 
public resources are difficult, and the current (and prospective) 
environment of revenues and spending pressures has created unusually 
severe challenges. But federal investments in the future are essential 
to maintaining the living standards and global leadership that this 
nation has enjoyed for much of the past century, and a consistent 
commitment to funding these investments in the future is no less 
essential.

                     Biography for David C. Mowery

Education

BA, economics, Stanford University

MA, economics, Stanford University

Ph.D., economics, Stanford University

Positions Held

At Haas since 1988
1988-present--Professor, Haas School of Business, UC-Berkeley

1988-present--Director, Ph.D. Program, Haas School of Business, UC-
        Berkeley

1988-present--Deputy Director, Institute for Management, Innovation, 
        and Organization

1988--Research Associate, National Bureau of Economic Research

1982-88--Assistant and Associate Professor, Social and Decision 
        Sciences Department, Carnegie-Mellon University

1987-88--Assistant to the Counselor, Office of the United States Trade 
        Representative

1987-88--Fellow, Council on Foreign Relations International Affairs 
        Fellow

1986-87--Study Director, Panel on Technology and Employment of the 
        National Academy of Sciences

1984-86--Visiting scholar, Center for Economic Policy Research, 
        Stanford University

1981-82--Post-doctoral Fellow, Harvard Business School.

External Service and Assignments

          Expert Witness, Congressional hearings on science and 
        technology policy issues

          Member, National Research Council panels, including 
        Competitive Status of the U.S. Civil Aviation Industry, Causes 
        and Consequences of the Internationalization of U.S. 
        Manufacturing, Federal Role in Civilian Technology Development, 
        U.S. Strategies for the Children's Vaccine Initiative, and 
        Applications of Biotechnology to Contraceptive Research and 
        Development

          Member, Committee on Science, Engineering, and Public 
        Policy, American Association for the Advancement of Science, 
        1997-2003; Member, Presidential Commissions on Offsets in 
        International Trade, 2000-2001

          Co-Editor, Industrial and Corporate Change, ``Special 
        Issue in Honor of Richard Nelson,'' 2001

          Co-Editor, Management Science, ``Special Issue on 
        University Technology Transfer and Entrepreneurship,'' 2001

          Adviser, Organization for Economic Cooperation and 
        Development and various federal agencies and industrial firms.

Current Research and Interests

          Impact of technological change on economic growth and 
        employment

          Management of technological change

          International trade policy and U.S. technology 
        policy, especially high-technology joint ventures.

Selected Papers and Publications

          ``The Sources of Industrial Leadership: 
        Introduction,'' (with R.R. Nelson), in D.C. Mowery and R.R. 
        Nelson, eds., The Sources of Industrial Leadership (Cambridge 
        University Press, 1999).

          ``The Global Computer Software Industry,'' in D.C. 
        Mowery and R.R. Nelson, eds., The Sources of Industrial 
        Leadership (Cambridge University Press, 1999).

          ``The Evolution of Strategy in the World's Largest 
        Chemical Firms,'' (A.D. Chandler, T. Hikino, and D.C. Mowery), 
        in A. Arora, R. Landau, and N. Rosenberg, eds., Strategy for 
        Competitiveness: The Global Chemicals Industry (John Wiley & 
        Sons, 1998).

          ``Collaborative R&D: How Effective Is It?'' Issues in 
        Science and Technology, 1998.

          Paths of Innovation: Technological Change in 20th-
        Century America, (with N. Rosenberg). Cambridge, MA: Cambridge 
        Univ. Press, 1998.

          Editor. The International Computer Software Industry: 
        A Comparative Study of Industry Evolution and Structure. 
        Oxford, England: Oxford University Press, 1996.

          Science and Technology Policy in Interdependent 
        Economies. Norwell, MA: Kluwer Academic Publishers, 1994.

Teaching

          BA 292B-1, Behavioral Science, Fall 1998

Honors and Awards

          Earl F. Cheit Award for Excellence in Teaching (Ph.D. 
        Program), 1996, 2001

          Raymond Vernon Prize, Journal of Policy Analysis and 
        Management, 1992

          Co-author of paper named a ``Significant Article,'' 
        20th Anniversary issue of Research Policy, 1993

          Fritz Redlich Prize, Economic History Association, 
        1987

          Newcomen prize, Business History Review, 1984

          A.B. with Honors and Distinction; Phi Beta Kappa, 
        1974

    Chairman Boehlert. Thank you so much, Dr. Mowery.
    Ms. Kenderdine.

STATEMENT OF MS. MELANIE KENDERDINE, VICE PRESIDENT, WASHINGTON 
              OPERATIONS, GAS TECHNOLOGY INSTITUTE

    Ms. Kenderdine. Chairman Boehlert, Mr. Gordon, Members of 
the Committee, thank you for the opportunity to testify this 
morning.
    Listening to all the Members' opening statements and being 
the third witness, as opposed to the first, makes me want to do 
what I shouldn't do, but I will anyway, which is deviate from 
my prepared text.
    The--I was also the Director of the Office of Policy at the 
Department of Energy. I worked at the Department of Energy for 
all eight years of the Clinton Administration. My portfolio 
also included being the Senior Policy Advisor to the Secretary 
on Oil, Gas, and Coal. I am the only person here without a 
``Dr.'' in front of my name. I have a lot of practical 
experience at DOE, and I approach this from a policy 
perspective. And after I left the government, I continue to 
work in both formal and informal energy policy groups, and we 
always get down to debating. Nobody debates the need to get off 
oil. That is kind of a fundamental point of agreement, and I do 
oil and gas, so it is a little bit dangerous to say that. But 
no one ever really debates that in the groups that I work with.
    But we always--our discussions always fall apart when we 
get to the point of determining how we get off oil. And I would 
agree with Dr. Mowery. It is a very, very complicated problem. 
But I also think that it is a very urgent problem. And I would 
make--starting out, looking at my testimony, writing my 
testimony, trying to figure out what the real market failure 
is, on oil. And what are we trying to address? What market 
failure are we seeking to address? And I would take that to its 
highest level.
    I have spent a lot of time in OPEC countries when I was at 
the Department of Energy. And we do have a cartel. And when I 
watch what happens to prices in the market and see what the 
cycle has been on oil prices, what I can say to you is the OPEC 
Saudi Arabia dream market is four years of the extremely high 
prices, which we are in that cycle now, and then one year of 
extremely low prices. Because what that does is disincentivizes 
the private sector and the public sector from investing in the 
research that we need to get off oil.
    And so I think my first point is that it is a fundamental, 
long-term commitment that we need to be making. It is 
expensive, and it is complicated.
    And as such, now I go back to the prepared text.
    The ARPA-E proposal constitutes a welcome effort to respond 
to critical energy needs by accelerating research in game-
changing technologies. I think, given the attributes of DARPA, 
it makes sense for ARPA-E as a starting point. There are, 
however, fundamental differences between the DOD and DOE 
cultures and customers that would have to be addressed for an 
ARPA-E to succeed. And as Chairman Boehlert and Congresswoman 
Biggert and others have pointed out, the difference in the 
customer base for DARPA. The customer base is the military. It 
has a lot of researchers out in the community. Those are 
performers; they are not customers. And, as other panelists 
have noted, DOE customers are the industry that--the private 
sector measures the value of R&D in terms of the price of a 
commodity. The technology winners from DOE research could 
strand energy assets in investments. And consequently, there is 
a huge aversion to picking winners in the DOE culture and 
applied energy R&D programs.
    I also think there will be a temptation to fund an ARPA-E 
from existing programs, most likely at lower than recommended 
levels. There are two risks to this approach. First, it would 
likely intensify internal DOE program resistance to ARPA-E and 
could jeopardize its establishment. And second, inadequate 
funding levels could set the program up for failure and confirm 
the prognostications of the skeptics, some of whom are at the 
table today.
    The following are some thoughts about how to make ARPA-E 
actually work at the Department of Energy in practice.
    To a large extent, the policy focus of ARPA-E, as I 
understand it, having read the report, is energy 
sustainability, and that duplicates the mission of a lot of the 
existing programs at DOE. There are, however, some inherent 
gaps in the DOE structure that I think an ARPA-E could address.
    First, DOE's applied research programs are organized around 
fuel sources: coal, oil, gas, nuclear, and renewables. This 
structure runs the risk of--for--and I saw this many times at 
DOE, runs the risk of, for example, isolating oil supply 
research from transportation research, when we are developing 
engines in one program at the Department of Energy and we don't 
have fuels to run them on from the other part of the Department 
of Energy that is responsible for doing that.
    Our fossil fuel program at DOE is completely separated 
culturally and bureaucratically from the efficiency programs 
when 86 percent of our energy consumption is fossil fuels. 
Efficiency and fossil fuel programs should be connected much 
more so than they are in the current structure at DOE. I think 
this promotes a tendency to focus on incremental or discreet 
technologies as opposed to systems.
    Second, the organizational separation of DOE's basic and 
applied energy research programs, and that is organization 
separation, makes the migration of basic research findings to 
applied research solutions undisciplined, difficult, and often 
serendipitous.
    To some extent, an ARPA-E would provide a formal 
integrating function that fosters a portfolio or a systems 
approach to an energy problem. Also, replicating DARPA's formal 
extraction of value from the entire research continuum from 
basic to applied to demonstration would be unique to the DOE's 
system. There are exceptions to that. Those are usually within 
programs, not across programs.
    There is, however, a danger in this kind of structural 
distinction of ARPA-E from the DOE programs, as opposed to 
policy-driven distinctions. ARPA-E could risk becoming an 
organization in search of a mission if there is not a lot of 
discussion and articulation of a clear mission by the policy-
makers in charge.
    ARPA-E could accommodate the DOE's customer-based 
differences by aggregating, through projects and advisory 
groups, and DARPA does a lot of that as well: one, technology 
investors who fund research at all stages of all technology 
development; two, technology developers who conduct basic and 
applied research, the entrepreneurs who provide ideas and 
expertise to technology deployers; and technology deployers who 
are the purchasers and users of advanced technologies. This 
would also maximize opportunities for successful technology 
transfer.
    Consortia provide another avenue for accommodating DOE's 
unique base--customer base as well as mitigating concerns about 
winners--picking winners. An example of this approach is seen 
in the natural gas supply R&D program included in EPACT last 
year. Like ARPA-E, this program provides an additional research 
management tool for DOE, requiring that the program be managed 
by a competitively-selected consortium that includes 
representatives of all sectors of the gas supply value chain.
    Finally, if Congress decides to establish ARPA-E, it should 
provide new money at full funding, either through 
appropriations or through alternative energy--or through 
alternative funding sources. I appreciate the tight budget 
constraints. I was distressed at the debate for the energy bill 
a couple years ago when--the one that failed by filibuster that 
the argument was over--we were going to--that the $30 billion 
price tag over 10 years. I thought that $3 billion a year for 
our energy future was not a lot of money to spend. I think that 
the--we are in perilous energy times. Just as we need new 
innovative programs to address critical energy imperatives, we 
also need innovation in how to pay for them.
    The Natural Gas Supply Research Program described earlier 
is funded through a trust fund at Treasury, and it receives 
mandatory funding from the federal oil and gas royalties. Given 
the fundamental role energy plays in our national and economic 
security, perhaps it is time to put energy on par with highways 
and historic preservation, both of which have statutorily-
directed trust funds.
    Thank you. I look forward to your questions.
    [The prepared statement of Ms. Kenderdine follows:]
                Prepared Statement of Melanie Kenderdine
    Chairman Boehlert, Mr. Gordon, thank you for the opportunity to 
testify before your committee this morning.
    Mr. Chairman, rising energy demand, constrained supplies, high and 
volatile energy prices, the geopolitical entanglements associated with 
the concentration of energy resources, and suggestions of sooner-than-
anticipated impacts of global climate change, test the resilience of 
our economy and our scientific and engineering preparedness. They also 
test our policy choices, including the investment of scarce federal 
research dollars.
    These and other pressing energy issues suggest that we have a 
relatively short time frame to initiate fundamental changes in how we 
produce, distribute and consume energy. Not only do we need to develop 
new technologies to provide sustainable energy supplies but the lead 
times for infrastructure investment and construction and capital stock 
turnover are daunting.
    One of the most significant challenges facing energy policy-makers 
is how to calibrate our energy policy responses and investments to 
overcome these time constraints, and to do so in ways that minimize 
price volatility, environmental impacts, global geopolitical tensions, 
and the stranding of industry assets.
    The ``ARPA-E'' proposal constitutes a welcome effort to respond to 
these and other critical energy needs by accelerating research in game-
changing technologies. I applaud the National Academy for its success 
in bringing this issue into focus in its recent report ``Rising Above 
the Gathering Storm,'' Congressman Gordon for introducing legislation 
in support of ARPA-E, and Chairman Boehlert and the Committee for this 
hearing today which provides us with an opportunity to discuss how an 
ARPA-E and its possible refinements might advance key energy policy 
objectives.
    DOE's programs, researchers and laboratories conduct high quality 
and important work on behalf of the Nation. DOE's applied research 
programs were deemed fundamentally ``worth it'' in a previous and 
relatively recent National Research Council report. Implicit in the NAS 
Committee recommendation for an ARPA-E, however, is the need for a new 
way to conduct a portion of the Nation's energy research business at 
the Department of Energy. This should not be read as an indictment of 
DOE's energy research programs. Rather it represents an attempt to 
effectively address serious and gathering energy needs in a compressed 
time frame--an additional tool for accelerating the transformation of 
the energy marketplace.
    Before a discussion of some general concerns with the specifics of 
ARPA-E, it is instructive to review some of the desirable features of 
DARPA that are highlighted in the NAS report (presumably for 
replication):

          A small, relatively non-hierarchical organization

          Flexible hiring and contracting practices that are 
        atypical of the Federal Government

          The ability to hire quickly from the academic world 
        and industry at wages substantially higher than those of the 
        federal workforce

          Short tenures, turnover of personnel enabling fresh 
        leadership and ideas on a continuous basis.

    It is noteworthy that these attributes focus primarily on process--
relative freedom from the restrictions and requirements under which 
most federal research programs operate including burdensome 
contracting, reporting, and oversight orders and regulations, low pay 
grades, the rigidities of the civil service system, and multi-leveled 
management hierarchies.
    Other structural or research model features of a DARPA that are 
highlighted as desirable for translation into an ARPA-E include:

          A lean, effective, agile--and largely independent--
        organization that can stop and start targeted programs based on 
        performance and. . .relevance

          Creative, out of the box transformational research 
        that could lead to new ways of fueling the Nation. . .as 
        opposed to incremental research on ideas that have already been 
        developed

          Longer-term research funding in a highly flexible 
        program--risk taking.

    While not specifically highlighted in the NAS report, some 
additional desirable features of DARPA (included in presentations by 
Dr. Richard Van Atta, formerly with DARPA) are:

          Development of integrated concepts beyond the purview 
        of a single service

          Taking on large-scale proof of concept demos with a 
        scientific process and a willingness to fail

          Working with the OSD leadership to broker the 
        commitment of the services.

    Given these attributes and features, the NAS recommendation of the 
DARPA model as a starting point makes sense. There are however some 
fundamental differences between the DOD and DOE cultures, bureaucracies 
and customers that necessitate significant calibration of the DARPA 
model for an ARPA-E like program to be successful at DOE. We have been 
asked to respond to a set of questions about the ARPA-E approach. I 
will briefly discuss certain issues raised by ARPA-E as proposed by NAS 
then address the questions you have asked me by offering some thoughts 
on possible refinements of the ARPA-E concept.
    General concerns with ARPA-E as described in the NAS report fall 
into the following areas:

          Program objectives

          Organization/reporting

          Customer base

          Funding/matching funds.

    Objectives of ARPA-E. It is unclear from the NAS report precisely 
what type of research outcomes and objectives the Academy contemplates 
for an ARPA-E. The report indicates that ARPA-E should fund and manage 
``transformational'' and high-risk, high-payoff research, which is 
defined earlier in the report as a ``subset of basic research.'' The 
report, in discussing the need for ARPA-E says that, ``In particular, 
ARPA-E could invest in a broad portfolio of foundational research. . 
..'' This objective is not easy to distinguish from that of DOE's 
Office of Science; this office is already funded at around $3.6 billion 
per year and has received a half-billion dollar plus-up in the 
President's FY07 budget request.
    The NAS report also describes ARPA-E's benefits to include 
``[accelerating] innovation in energy and the environment for both 
traditional and alternative energy sources and in energy efficiency 
mechanisms.'' Further, the report's description of ARPA-E identifies 
very specific research structures and technologies, indicating that one 
of ARPA-E's benefits would be ``[fostering] consortia of industry, 
academe, and laboratories to work on critical research problems, such 
as the development of fuel cells.'' These program benefits and targets 
suggest an applied research program and appear to conflict with the 
definition of basic research which eschews timeframes, specific 
applications and products and focuses instead on ``gaining knowledge or 
understanding of the fundamental aspects of phenomena.''
    These descriptions beg several questions. Is ARPA-E primarily a 
basic research program, an applied research program, a program to 
``turn cutting edge science and engineering into technology,'' an 
effort to accelerate commercialization, or all of the above? Each of 
these suggests different leadership, organizational structures, 
personnel capabilities, and reporting chains, as does a single program 
that contemplates performing all these functions (an approximation of 
DARPA). A clarification of program objectives will drive the research 
management model and is fundamental to program success. Further, there 
needs to be a clear delineation between DOE's existing basic and/or 
applied research programs and ARPA-E's mission, research targets, 
reporting chain, etc.

    ARPA-E Organization/Reporting. The NAS recommends that the ARPA-E 
program director report to the Under Secretary of Science. The ARPA-E 
proposal represents a fairly significant departure from how DOE 
currently conducts business. It is bound to raise issues of 
coordination with existing programs, concerns about picking winners, 
and other potential oversight issues as the program breaks new and 
controversial ground.
    These are sensitive issues both internally and externally and may 
require the imprimatur of the Secretary or Deputy Secretary whose 
portfolios are the broadest and authorities are sufficient to manage 
and mediate the controversies that could arise from such a fundamental 
change in approach to DOE research management. Also, the unique 
contractual, personnel and pay scales contemplated in an ARPA-E program 
may require greater organizational separation from existing programs 
(organizational independence is identified as a key positive feature of 
DARPA) than is possible in a reporting structure through the Under 
Secretary with line authority for other programs.

    ARPA-E Customer Base. The nature of the customer base serves as a 
key point of departure from a pure ARPA-E replication of DARPA and what 
might actually work at DOE; this difference is not trivial and should 
inform this discussion and its outcomes.
    DARPA funds a large network of researchers outside of the Defense 
Department; these are, however, DARPA-funded ``performers'' as 
distinguished from its ``customers.'' DARPA's sole customer and the 
focus of its mission--``to maintain the technological superiority of 
the U.S. military and prevent technological surprise from harming our 
national security by sponsoring revolutionary, high-payoff research 
that bridges the gap between fundamental discoveries and their military 
use''--is the military. As such, the peril of ``picking winners'' by 
DARPA is very manageable as there is only one customer valuing the 
results.
    This is contrasted with the ultimate customers for the products of 
DOE's applied energy research programs--literally thousands of players 
in a single energy sector, multiplied by the many different sectors 
that comprise our energy industry. Further, most of these customers are 
private industry stakeholders for whom the value of research is 
measured in the price and availability of a commodity. This places high 
value on short-term results. Also, picking winners and losers could 
affect both the value of that commodity and the relative worth of the 
research beneficiaries; cost and price are critical measures of 
success. Finally, picking winners threatens to strand existing industry 
assets. As such, the peril to bureaucrats, researchers and program 
funding is significant and much more subject to external political 
pressures; picking winners, as a matter of DOE policy, is often 
actively discouraged or resisted.

    Funding Mechanism/Cost Share. The NAS report recommends funding 
levels of $1 billion a year for ARPA-E after an initial ramp-up period, 
a level deemed necessary for program optimization and success. Needless 
to say, finding new money at this level will be difficult and there 
will be a temptation to carve out funds for ARPA-E from existing 
programs, most likely at levels that are substantially lower than those 
recommended in the Academy report.
    There are two risks to this approach: 1) seeking funds from 
existing programs will likely intensify internal DOE program resistance 
to ARPA-E and could jeopardize the establishment of the program, and; 
2) an ARPA-E program, by virtue of its new and unique approach to 
research management at DOE, will be controversial. Inadequate funding 
levels, through either appropriations or a re-programming of funds from 
existing programs, could help ensure program failure, confirming the 
prognostications of program skeptics.
    It is worth noting that at DOE an ARPA-E that is focused primarily 
on applied R&D (or includes a substantial applied R&D component) would 
typically require industry cost share (which is not the case at DARPA). 
Federal procurement, intellectual property, contract management 
provisions, DOE orders and other federal requirements are off-putting 
to many industry players, placing de facto barriers to industry 
participation and cost share commitments--essential elements to 
successful applied energy R&D, including demonstration, deployment and 
technology transfer.
    Federal energy R&D is performed under the constraints of annual 
appropriations which are inconsistent from year-to-year, 
administration-to-administration and secretary-to-secretary. Also, 
program funds are largely ``mortgaged'' from the start, and 
increasingly line-itemed. The risks and limitations of the funding 
process further discourages industry participation and its commitment 
of matching funds, making it more difficult to optimize the migration 
of technologies into the marketplace. If ARPA-E is funded at relatively 
low levels in its early years, the ramp-up in the out years as 
contemplated in the NAS report would place that important increment 
(likely necessary when projects get to the demonstration phase, for 
example) in competition with other DOE programs as well as with 
programs in other agencies that are funded through the Energy and Water 
Appropriations Committee; this lack of certainty in out-year funding 
could further complicate and discourage longer-term industry 
commitments to critical projects.

    Making ARPA-E Work. The following are some thoughts and 
recommendations (strictly my own, there are many alternatives and 
options) on how an ARPA-E might accommodate some of the idiosyncrasies 
of the DOE culture, structure and customer base that could maximize 
program effectiveness and address some of the concerns articulated in 
the Committee's questions.
    Role of ARPA-E at DOE. There are many high level policy objectives 
that could serve as the basis for ARPA-E research investments, given 
the broad range of energy needs facing the Nation. I would recommend 
four areas that could provide focus as well as an organizing function, 
although ARPA-E program managers should be given wide latitude in 
addressing these challenges including the freedom to deviate from core 
focus areas if warranted. Also, these focus areas do not approximate 
the ``strategic thrusts'' of DARPA, which for a new ARPA-E would have 
to be identified after significant analysis and discussion. General 
focus areas for ARPA-E, however, should include:

          development of economically sustainable energy 
        sources, which implies a reduction in oil consumption and U.S. 
        reliance on imported energy from unstable regions of the world, 
        and the development of domestic, hemispheric and alternative 
        energy sources

          environmental mitigation, particularly greenhouse gas 
        capture and sequestration,

          energy infrastructure development to produce, refine 
        and distribute new sources of energy

          energy efficiency, with a focus on end use 
        efficiencies.

    To a large extent, these focus areas duplicate those of existing 
DOE programs, which have developed numerous high-impact technologies, 
and have enhanced the Nation's knowledge base in critical areas. There 
are however, some gaps inherent in the structure of DOE programs:

          DOE's applied research programs are organized around 
        fuel sources, e.g., coal, oil, gas, nuclear, renewables (the 
        efficiency program is an exception). The existing 
        organizational structure and focus provides a solid foundation 
        for the Department's applied research and the support of strong 
        constituencies; it runs the risk however of isolating oil 
        supply from transportation or fossil fuels from efficiency, for 
        example, and promotes a tendency to focus on incremental or 
        discrete technologies (exceptions are generally within 
        programs, not across programs) as opposed to systems that 
        integrate research needs from supply to distribution to end 
        use.

          The organizational separation of DOE's basic energy 
        research program from its applied research programs makes sense 
        in many instances, but it also makes the migration of certain 
        basic research findings to applied research solutions 
        undisciplined, more difficult, and often, serendipitous.

    There are both ad hoc and, in some instances, formal structures at 
DOE that encourage communication and coordination between the various 
applied research programs and between the applied research and basic 
research programs. In the final analysis, however, the competition for 
funding from the same appropriation, bureaucratic separation, and 
different program cultures and performance measures, ultimately work 
against optimum levels of cooperation and coordination across programs.
    An ARPA-E like program could help fill these gaps and supplement 
but not supplant the missions of existing DOE programs. As noted 
earlier, the ``development of integrated concepts beyond the purview of 
single service [program],'' is one of the features of DARPA that is 
desirable for replication. To some extent, on certain key problems to 
be identified, an ARPA-E could provide the formal integrating function 
that fosters a portfolio approach to a problem. In addition, providing 
ARPA-E with administrative flexibility in contracting, hiring, etc., 
and the easy transfer of personnel and ideas between the government, 
industry and academia will further distinguish ARPA-E from existing DOE 
programs.
    Finally, replicating DARPA's formal extraction of value from the 
entire research continuum--from basic to applied to development to 
deployment--would be largely unique to the DOE system (DARPA's budget 
reflects the research continuum including basic and applied to large 
scale demonstration). Directing a minimum percentage of program funds 
to basic research--for both the national laboratories and 
universities--would protect against the tendency of DOE's energy R&D 
customer base comprised largely of industry to focus on near-term 
research and results. Congress might also consider setting aside a 
portion of ARPA's funds as venture capital for promising, innovative 
opportunities in the private sector.
    In short, ARPA-E would be distinguished from existing DOE programs 
more by its structure than by the policy objectives its research would 
address. There is, however, a danger in a ``structural'' as opposed to 
policy-driver distinction; without an upfront, clear articulation of 
some fundamental strategic research thrusts, an ARPA-E could risk 
becoming an organization in search of a mission. Nevertheless, the 
drivers described above do not differ substantially from similar gaps 
DARPA seeks to fill--``research that the services are unlikely to 
support because it is risky, does not fit [the services] specific roles 
or missions, or challenges their existing systems or operational 
concepts.''
    ARPA-E Reporting Structure. From an organizational/reporting 
perspective, it is essential to program success that the ARPA-E program 
director be a direct report to either the Secretary or Deputy Secretary 
for the reasons articulated earlier in this discussion. This would be 
especially important in the start-up years of the program to help 
maximize opportunities for success and tracks the development of DARPA, 
which also reported to the Secretary and Deputy Secretary in its early 
years.
    The size and nature of the program also raises the issue of whether 
or not the program director should be Senate-confirmed. ARPA-E would be 
both controversial and engaged in high-risk, high-payoff research, 
which suggests, at times, high-profile failures. Also, depending on the 
final shape of ARPA-E, the program director will require a very unique 
skills set, likely to include a combination of research, government and 
industry experience. Selection of the best individual as program 
director is critical, as is continuity in that position. This should 
not be considered a political job; insulating the director's position 
from the confirmation and/or political appointment process is 
desirable, as would be assistance in the search for the right 
individual with the right credentials from, for example, a subcommittee 
of the Secretary of Energy's Advisory Board (SEAB).
    DOE Customer Base. Accommodating the differences between the DARPA 
and DOE customer bases is one of the biggest challenges for an 
effective ARPA-E. Ideally, an ARPA-E would aggregate these key players 
in the research value chain: (1) technology investors who fund research 
at all stages of technology development; (2) technology developers who 
conduct basic and applied research; (3) entrepreneurs who provide ideas 
and expertise to technology deployers; and (4) technology deployers who 
are the purchasers of technology and use advanced technologies for 
energy production, distribution and end use. A formal advisory 
committee structure that includes representatives from each of these 
stakeholder groups could provide important strategic direction and 
real-world input, but care would need to be taken to ensure that this 
does not limit the flexibility of program managers. Accommodating the 
views and interests of these key players in the research value chain 
would also maximize opportunities for successful technology transfer 
and diffusion in the energy marketplace.
    Research management and research performing consortia provide 
additional avenues for accommodating the interests of diverse and 
numerous industry customers as well as for mitigating concerns about 
picking winners. An example of this approach is seen in the Ultra-
deepwater and Unconventional Natural Gas Supply R&D program included in 
EPACT last year. Like ARPA-E, this program provides an additional tool 
for managing DOE research. While directing substantial oversight by the 
Department, including strict conflict of interest provisions, it 
requires that the program be managed by a competitively selected 
research management consortium that includes industry, academia, 
national laboratories, venture capital firms, service companies, 
private research institutions and large end users representing all 
sectors on the gas supply value chain. The consortium is not a research 
performer; rather, with the approval of DOE, it establishes the 
research agenda, develops project specifications, selects and manages 
research projects, and transfers the technology into the marketplace. 
The program also includes a complementary research program element at 
the National Energy Technology Laboratory.
    Funding ARPA-E. If ARPA-E is designed to fill the gaps in the 
current DOE structure as an agile ``integrator'' that extracts value 
from the entire research value chain--as well as a high-risk, high-
payoff and long-term research manager--it needs to be insulated from 
external pressures and the natural resistance of existing DOE programs 
to the maximum extent practicable. In this regard two things are worth 
noting: the NAS report indicates that in the beginning DARPA was 
``threatening'' to the DOD research establishment; and high risk 
research projects are bound to have a relatively high failure rate. As 
such, at a minimum, ARPA-E should be a Congressionally-endorsed program 
funded with new money, at the full one billion dollar level. It should, 
however, be given the flexibility of ``no year'' money in order to ramp 
up in the early years and accrue funds for the more expensive out 
years.
    Funds for new program are however extremely tight. As such, the 
Congress should also consider other options to pay for ARPA-E. The 
Natural Gas Supply Research Program described above is funded through a 
Trust Fund at Treasury and receives mandatory funding from federal oil 
and gas royalties. The Energy Information Administration analyzing an 
earlier version of this program indicated that it would result in 
increased domestic gas supplies and attributed its probable success to 
the funding certainty of the Trust Fund. There is an attractive policy 
synergy in utilizing oil and gas royalties to develop sustainable 
energy sources; the royalty stream would, however, have to be 
sufficiently robust over time to help fund this transition.
    Another option the Congress might consider is the mechanism used to 
fund DOE's Clean Coal program, which received it entire multi-year 
funding in a single year and from which it has been drawing down over 
time as projects are approved and implemented. This does not address 
concerns over the funding of new starts. It would however address key 
issues with respect to maintaining industry support and cost share by 
demonstrating that the government would be a reliable partner over a 
long period of time.
    Finally, the Congress might consider the results of a recent poll 
that indicated the American public would support an increase in the 
gasoline tax if the funds generated from the tax were directed to 
reducing our oil reliance and addressing climate change. To ensure the 
public that these funds were being wisely spent, the funds would need 
to be segregated into an innovative and cross-cutting program like an 
ARPA-E. A one cent per gallon gasoline tax would pay for the entire 
ARPA-E program at levels recommended in the NAS report.

    Mr. Chairman, generating sufficient energy to power the world in 
ways that protect the environment and promote global economic growth is 
one of the most significant imperatives of our time. To meet this 
challenge, we should be prepared to commit significant resources, 
consider all options, and empower the innovators.
    There are significant issues that must be addressed and refinements 
that would have to be made to make ARPA-E succeed in the DOE culture 
and bureaucracy. If properly organized, empowered, and funded, however, 
an ARPA-E type program could provide a new and aggressive link between 
the needs of the energy marketplace and research directions, operating 
as a primary interface between the energy industry and DOE's national 
laboratories and experts in academia.
    Thank you for this opportunity and I look forward to the 
Committee's questions.

                    Biography for Melanie Kenderdine
    Melanie Kenderdine of Gas Technology Institute (GTI) provides 
commentary on the natural gas industry and issues related to U.S. 
energy policy and legislation. With more than two decades of experience 
in both federal and private energy sectors, she understands and 
communicates effectively about energy issues and policies, as well as 
the latest developments in pursuit of natural gas and other energy 
sources. She is particularly knowledgeable about trends in domestic and 
world energy supplies and in technologies that will impact energy 
supply and demand.
    Trend: Industry is the single largest consumer of natural gas in 
the United States. But the high cost of natural gas is driving natural 
gas dependent industries overseas, despite abundant technically 
recoverable domestic natural gas reserves. Making these reserves more 
economic to produce and developing efficiency technologies to enhance 
natural gas consumption are crucial to the Nation's industrial base, to 
residential consumers and to its economic security.
    Trend: In an age of heightened domestic security, protecting our 
nation's energy infrastructure is crucial to protecting our economy. 
With 1.8 million miles of natural gas pipeline connecting the majority 
of U.S. homes and workplaces, working with industry and government to 
secure the infrastructure in ways that are easily integrated into 
industry is critical. GTI is working with industry and the Federal and 
State governments to ensure that we maintain the security, integrity, 
safety and reliability of this infrastructure.

Accomplishments:

          Director, Office of Policy, U.S. Department of Energy 
        (DOE)

          Senior Policy Advisor, DOE, oil, gas, coal and 
        nuclear issues

          As Senior Policy Advisor was the Architect for:

                  R&D initiatives for ultra-clean fuels and 
                energy grid reliability

                  Strategic Petroleum Reserve royalty-in-kind 
                initiative

                  National Energy Technology Laboratory 
                Strategic Center for Natural Gas Studies

                  DOE response to Japan nuclear accident, 1999.

Presentations & Speeches:

          ``Issues for Evolving LNG Markets,'' Montreux Energy 
        Roundtable XV, Montreau, Switzerland, Sept. 27-29, 2004

          ``Energy and Nanotechnology: Strategy for the 
        Future,'' Natural Gas Technologies For The Future, Houston, 
        Texas, May 2-4, 2003

          ``The 10/50 Solution,'' Pew Center on Global Climate 
        Change/NCEP, Washington, D.C., March 24, 2004

          Sixth Annual International Energy Experts Conference, 
        Abu Dhabi

          Congressional Testimony--numerous appearances on 
        energy related issues.

Publications & Interviews:

          Harts E&P, ``Offshore Report: Ultradeepwater R&D 
        program needed,'' September, 2001

          Physics Today, ``Meeting Energy Challenges: 
        Technology and Policy,'' April, 2002.

Education:

B.A., Political Science, University of New Mexico.

    Chairman Boehlert. Thank you very much.
    Dr. Fernandez.

STATEMENT OF DR. FRANK L. FERNANDEZ, PRESIDENT, F.L. FERNANDEZ, 
                              INC.

    Dr. Fernandez. Mr. Chairman, Members of the Science 
Committee, I am pleased to have been asked to give you my views 
on DARPA and the possible utility of a similar organization in 
the Department of Energy.
    Now I am not an expert on energy matters, so my comments 
are structured to describe the way things work at DARPA 
actually and to provide suggestions to things that the 
Committee might want to consider if it does decide to create an 
ARPA-E.
    My experiences with DARPA goes back almost as far as DARPA. 
I have been working as a contractor for DARPA. I worked as a 
representative of the Chief of Naval Operations in negotiations 
with DARPA, and finally as the Director of DARPA from 1998 to 
2001.
    In my experience, the fundamental reason for the existence 
of DARPA in the Department of Defense has never really changed 
since it was created in 1958, a reaction to stove-piped 
military services' disconnected space programs that led to 
America's Sputnik failure.
    DARPA began as a result of a serious political 
embarrassment, not as a result of well-meaning panels. The 
reason--this reason for DARPA, then, is a belief that in order 
to maintain United States technological superiority into the 
future over potential adversaries, the Department needs a 
central organization reporting to the Secretary to create and 
fund the high-risk, potentially high return R&D projects, and 
that this activity needs to exist in addition and independent 
of the military service funded research and development, even 
if this is perceived to be in competition for important 
resources.
    This belief is based on the very critical observation over 
the years that in many R&D organizations, and in the DOD in 
particular, stove pipes always seem to rise and thrive and that 
they develop risk-averse parochial views, which can seriously 
misjudge the potential for new high-risk, technologically-
enabled opportunities and threats.
    The recommendation to create a central agency in the 
Department of Energy makes sense to me if it turns out that the 
Department also has this stove pipe problem that exists in the 
Department of Defense.
    DARPA's function, then, is to work across and around these 
stove pipes for important, national defense problems.
    To do this, DARPA utilizes a two-pronged approach.
    First, it opportunistically finds and funds long-term, 
outcome-focused R&D projects, using the best talent in 
universities, laboratories, and industry, even if it doesn't 
always get everything right.
    In parallel, it demonstrates and tries to make a market for 
these technologies by helping to fund developments needed for 
the military and commercial adoption.
    I think that this ability to simultaneously fund focused, 
long-term research and to act as a market-maker with potential 
customers is a critical difference between DARPA and other DOD 
research and development entities. DARPA is basically the DOD 
agent for change.
    If the Committee decides that ARPA-E is to be such a 
central organization, then I think, like DARPA, it should have 
such a two-pronged approach to its funding investment 
activities.
    Now balancing these often conflicting activities requires 
an organization with special structure, authorities, and 
operating style.
    DARPA is currently an example of such an organization in 
the Department of Defense. Like DARPA, I think the ARPA-E 
should be the central agency, and should have a clear, national 
purpose for its projects that differentiates it from the 
laboratories and other energy agencies. It should have 
visibility and access to the top management of the Department 
and not be a part of an established R&D bureaucracy.
    Like DARPA, I think it should have a mandate to create, 
demonstrate, and transition high-risk, high-return technologies 
to maintain the United States' technical superiority in energy.
    Like DARPA, I think it should be a funding agency with very 
little infrastructure, a flat organization, and a small, very 
competent entrepreneurial technical staff. Budget and program 
control should rest with the Director and the program managers, 
and the agency should enforce constant turnover of both 
programs and staff.
    Like DARPA, it should have both the special authorities and 
the resources needed to exercise these authorities. For 
example, it doesn't do any good to give an organization special 
hiring or special contracting authority if it doesn't have the 
contracting and hiring resources in house to implement those 
authorities, problems that I think existed with the current HS 
ARPA when they first started.
    Unlike DARPA, however, as has been said several times, 
ARPA-E would be in the energy business, not the defense 
business. I don't think that it should be a strict clone of the 
Defense agency. Instead, I think it should receive the funding, 
flexibility, and leadership authorities, and most importantly, 
the time necessary to let it become the change agent for the 
Department of Energy.
    DARPA's evolution, especially during its beginning, was not 
without a lot, and a lot, of problems, and Congressional 
support was one of the reasons why DARPA is still here today, 
long-term Congressional support.
    Now the final point, if an ARPA-E is created, I think that 
a DARPA-like model might make some sense, even if the 
Department of Energy is not the primary consumer of its 
technologies. This condition is not always necessary for the 
creation and transition of revolutionary technology.
    Let me give you a couple of examples.
    In 1962, DARPA found and funded a support network of early 
information technology researchers at universities and firms 
that, over time, built a dominant, non-Defense technological 
capability in something--in personal computing and something 
called the Internet.
    And though the DOD never represented a major market for 
this capability, and it never did, okay, it was able to take 
advantage of it quickly and affordably.
    In 1987, SEMATECH was created with private and federal 
funding. And DARPA managed the federal programs, in partnership 
with industry. SEMATECH succeeded in reestablishing the United 
States' dominance in semiconductor manufacturing. And without 
having to make a market, the Department of Defense profited 
from a very, very competitive industrial base that it could use 
without fear of control by a foreign power.
    The current revolutionary working concept of network-
centric warfare in the military, which has enabled the United 
States to achieve unparalleled dominance, rests, to a great 
extent, on commercial IT infrastructure, the use of commercial, 
off-the-shelf technology, much of which is the result of DARPA 
investments.
    In each of these examples, DARPA technology went first to 
the commercial sector and then got bought by the military, a 
transition path which is still being followed at DARPA for some 
of its newer technologies.
    Finally, and with all due respect to the Committee, even 
though I am extremely proud of my association with DARPA, I 
think it might be helpful if the Committee considered a 
different name for this new organization, if it creates it, a 
name that reflects the uniqueness of the 21st century energy 
needs of this nation.
    Thank you.
    [The prepared statement of Dr. Fernandez follows:]
                Prepared Statement of Frank L. Fernandez
    Mr. Chairman and Members of the U.S. House of Representatives' 
Science Committee, I am pleased to have been asked to give my views on 
the pros and cons of creating an ARPA-E organization in the Dept. of 
Energy. I hope that this brief statement addresses your major 
questions.
    At the outset, I need to tell you that, since I have spent most of 
my career in the defense R&D business, I am not an expert on energy 
matters. Nevertheless, I hope that my comments will be helpful to the 
Committee.
    For the past forty years I have worked with DARPA as a research 
contractor representing both small and large companies, as a Navy 
consultant, representing the Chief of Naval Operations, as Director of 
DARPA, from May 1998-January 2001, and, most recently, as a consultant 
to the current DARPA Director. This variety of views of DARPA forms the 
basis for what follows.
    In my experience, the fundamental reason for the existence of DARPA 
in the Department of Defense (DOD) has never really changed since 1958, 
when President Eisenhower created the Agency in reaction to the stove 
piped military services' disconnected space programs that led to 
America's Sputnik failure.
    The reason for DARPA is a strong belief, currently held by both the 
executive and legislative branches of the government, is that, in order 
to maintain U.S. technological superiority over potential adversaries, 
the DOD needs a central organization, reporting to the Secretary, to 
create and fund high risk, potentially high return R&D projects. This 
is in addition to service funded R&D.
    This belief is based on the fact that, regardless of intentions, 
within the DOD, organizational ``stove pipes'' develop and these 
``stove pipes'' often have risk-averse, parochial views which can 
misjudge the potential for new, technologically enabled, opportunities 
and threats, especially if the technology is high risk.
    The idea of a central agency, ARPA-E, may make sense if the DOE 
shares some of these organizational and management problems with the 
DOD.
    DARPA's function is to work across and around these stove pipes for 
important, national defense problems.
    Achieving this mission for almost fifty years has required that 
DARPA continuously adapt and to a defense environment that has 
undergone large change because of changing adversaries and, also, 
because of technology, much of which was the result of DARPA 
initiatives.
    In order to accomplish its mission, DARPA employs a two pronged 
approach.
    It opportunistically, finds and funds long-term, outcome focused 
R&D projects using the best talent in universities, laboratories and 
industry.
    In parallel, it demonstrates and ``makes a market'' for these 
technologies by helping to fund developments needed for military and 
commercial adoption.
    I think that this ability to, simultaneously, fund focused long-
term research and to act as a ``market maker'' with potential customers 
is a critical differentiator between DARPA and other DOD R&D entities.
    DARPA is not bound by DOD acquisition requirements for technology 
or systems projects. DARPA often mixes basic research, applied research 
and advanced technology development in its projects to aid the 
transition of the understanding to war fighting capability.
    It is this freedom to innovate that differentiates DARPA from the 
other DOD laboratories and funding agencies.
    This following list of characteristics that help DARPA operate at 
both the Institutional and personal innovation organization levels is 
largely drawn from DARPA's own descriptions of its organizing 
elements:\1\
---------------------------------------------------------------------------
    \1\ DARPA, DARPA--Bridging the Gap, Powered by Ideas (Feb. 2005); 
DARPA, DARPA Over The Years (Oct. 27, 2003)

Small and flexible: DARPA consists of only 100 to 150 professionals; 
some have referred to DARPA as ``100 geniuses connected by a travel 
---------------------------------------------------------------------------
agent.''

          Flat organization: DARPA avoids military hierarchy, 
        essentially operating at two levels to ensure participation.

          Autonomy and freedom from bureaucratic impediments: 
        DARPA operates outside civil service hiring and the limits of 
        government contracting rules, which gives it unusual access to 
        talent, plus speed and flexibility in organizing R&D efforts.

          Technical staff drawn from world-class scientists and 
        engineers: DARPA's talent is drawn from industry, universities, 
        and government laboratories and R&D centers, mixing disciplines 
        and theoretical and experimental strengths.

          Technical staff hired or assigned for 3-5 years: Like 
        any strong organization, DARPA mixes experience and change. It 
        retains a base of experienced experts that know their way 
        around DOD, but rotates most of its staff to assure fresh 
        thinking and perspectives.

          Project-based, organized around a challenge model: 
        DARPA organizes a significant part of its portfolio around 
        specific technology challenges. Although its projects typically 
        last 3-5 years, major technological challenges may be addressed 
        over much longer time periods, ensuring patient long-term 
        investment, but only as a series of focused steps.

Necessary supporting personnel (technical, contracting, administrative) 
are used from other agencies on a temporary basis: This provides DARPA 
flexibility to get into and out of a technology field area without the 
problems of sustaining staff.

          Outstanding Program Managers are the heart of DARPA: 
        In DARPA's words, ``The best DARPA Program Managers have always 
        been freewheeling zealots in pursuit of their goals.'' The 
        DARPA Director's most important job historically is to recruit 
        highly talented program managers and empower them to be 
        creative.

          Acceptance of failure--DARPA, at its best, pursues a 
        high risk model for breakthrough opportunities, and is very 
        tolerant of failure if the payoff from potential success is 
        great enough.

          Oriented to revolutionary technology breakthroughs--
        DARPA historically has focused on radical, not incremental, 
        innovation, emphasizing high-risk investment, moving, as noted, 
        technology advances from fundamental through prototyping, then 
        handing off the production stage to services or commercial 
        sector. DARPA often works on solutions to joint service 
        problems which individual services traditionally are reluctant 
        to pursue.

          Mix of Collaborators--DARPA typically has tried to 
        build strong teams and networks of collaborators, bringing in a 
        range of technical expertise and involving technology firms 
        that are often not significant defense contractors with 
        outstanding university researchers. The aim is to ensure strong 
        collaborative ``mindshare'' on the challenge.

    If the Committee decides that ARPA-E is to be such a central 
organization, then, like DARPA, I think that it should have such a two-
pronged approach to its activities.
    It must find and fund long-term outcome focused R&D projects using 
the best talent in universities, laboratories and industry. In 
parallel, and often in conflict with the first part of the approach, it 
should convince selected parts of the energy industry that its 
technologies can radically and positively affect the energy business 
and that these technologies should be adopted. In addition, in 
partnership with industry, it should help fund the developments 
necessary to implement these technologies.
    Balancing these, often conflicting, goals requires a special 
structure and operating style and DARPA is an example of something that 
works in the DOD.
    Like DARPA, I think that ARPA-E should be created as the central 
energy research and development organization in the DOE and should have 
a clear, national purpose for its projects that differentiates it from 
the laboratories and other agencies. It should have visibility and 
access to the top management of the Department and not be part of an 
established R&D bureaucracy.
    Like DARPA, I think that it should have a mandate to create, 
demonstrate and transition high risk, high return technologies that can 
dramatically change the U.S. energy posture in the future.
    Like DARPA, I think that it should be funding agency, with very 
little infrastructure, a flat organization and a small, very competent, 
entrepreneurial, technical staff. Budget and program control should 
rest with the Director and the program manager and the agency should 
enforce constant turnover of both programs and staff.
    Like DARPA, I think that it should have both the authorities and 
the resources needed to implement these authorities. For example, while 
flexible contracting and hiring authorities are necessary, implementing 
these authorities requires dedicated, in house, resources.
    Unlike DARPA, however, ARPA-E will be in the energy business, not 
the defense business. Congress should not try to make this agency 
strictly mimic a defense agency that has and continues to evolve to 
accommodate a changing defense environment.
    Instead, I think that ARPA-E should receive the funding, 
flexibility, leadership authorities and, most importantly, the time 
necessary to let it become the change agent for the DOE.
    I think that a DARPA like model makes sense even if the DOE is not 
the customer for the technology because this is not necessary for the 
transition of revolutionary technology.

    The most famous example:\2\
---------------------------------------------------------------------------
    \2\ Provided by William Bonvillian, from a draft 02/19/06 ``DARPA 
and the Connected Science Model For Its Innovation--Where Should It Go, 
Now?''

    President Kennedy and Defense Secretary Robert McNamara were deeply 
frustrated with profound command and control problems during the Cuban 
Missile Crisis--the inability to obtain and analyze real time data and 
interact with on-scene military commanders. DARPA brings in Licklider 
to tackle the problem. It is the rare case of the visionary being 
placed in the position of vision-enabler. Strongly backed by noted 
early DARPA Directors Jack Ruina, Charles Herzfeld and George Heilmeir, 
Licklider finds, selects, funds, organizes and stands up a remarkable 
support network of early information technology researchers at 
universities and firms that over time builds personal computing and the 
Internet.
    At the institutional organization level, DARPA and Licklider become 
a collaborative force among the Defense Department research agencies 
controlled by the services, using DARPA investments to leverage their 
participation to solve common problems under connected science and 
challenge models. DARPA and Licklider also keep their own research 
bureaucracy to a bare bones minimum, using the service R&D agencies to 
carry out project management and administrative tasks, so that DARPA's 
efforts create co-ownership with the service R&D stovepipes. 
Institutionally, DARPA becomes more of a research supporter and 
collaborator, not a rival competitor to the DOD research establishment. 
DARPA provides an institutional example within DOD for a way to create 
a flexible, cross-agency, cross-discipline model among stove piped U.S. 
R&D agencies. At the personal level of innovation organization, 
Licklider creates a remarkable base of information technology talent 
both within DAPRA and in a collaborative network of great research 
groups around the country.
    Because it sees ongoing progress, DARPA is willing to be patient 
and look at long-term investments in IT talent and R&D investments in a 
way that corporations and venture capital firms are not structured to 
undertake. Licklider's DARPA model is also not a flash in the pan. 
Internally it is able to institutionalize innovation so that successive 
generations of talent sustain and keep renewing the IT technology 
revolution over the long-term. At the personal level of innovation, the 
great groups Licklider starts, in turn, share key features of the Rad 
Lab group previously discussed. Licklider's Information Processing 
Techniques group remains the first and greatest success of the DARPA 
model. But this success is not unique; DARPA is able to achieve similar 
accomplishments in a series of other technology areas.
    One more key point: DARPA was willing to spawn technology advances 
not only in the defense sector but in the non-defense economy as well, 
recognizing that an economy-wide scale, as opposed to a defense sector-
only scale, is needed to speed the advance. The Department of Defense 
(DOD) was able to take advantage of this technology evolution speed up, 
with its shared, and therefore reduced, development and acquisition 
costs, which enabled DOD to obtain the tools it needed to solve its 
initial command and control problem more quickly and less expensively.
    The DOD was never as major market for personal computing or the 
Internet.

    Another example:

    In 1987, faced with a competitor that threatened to control the 
semiconductor market, the SEMATECH venture was formed to improve 
domestic semiconductor manufacturing. The federal dollars for SEMATECH 
were funneled through DARPA because semiconductor manufacturing was 
seen as vital to the defense technology base.
    The success of the SEMATECH partnership in reestablishing U.S. 
dominance in semiconductor fabrication was in part due to the fact that 
DARPA, in partnership with industry, was able to rapidly create and 
fund focused high risk, high return programs.
    More importantly, the DOD profited from an industrial base that it 
could use without fear of control by a foreign power without having to 
make a market.

    A final example:\3\
---------------------------------------------------------------------------
    \3\ Provided by William Bonvillian, from a draft 02/19/06 ``DARPA 
and the Connected Science Model For Its Innovation--Where Should It Go, 
Now?''

    When Andy Marshall, DOD's legendary in-house defense theorist, 
announced that U.S. forces were creating a ``Revolution in Military 
Affairs,'' this defense transformation was built around many of the IT 
breakthroughs DARPA initially sponsored. Admirals Bill Owens and Art 
Cebrowski and others, in turn, translated this IT revolution into a 
working concept of ``network centric warfare'' which enabled the U.S. 
in the past decade to achieve unparalleled dominance in conventional 
warfare.
    In each of these examples, DARPA technology went, first to the 
commercial sector, then to the military, a transition path still 
followed at DARPA for many revolutionary technologies.
    Finally, and with all due respect, even though I am extremely proud 
of my associations with DARPA, I think that it might be helpful if the 
Committee considered a different name for this new organization, a name 
that reflects the uniqueness of the twenty first century energy needs 
of the Nation.
    Thank you.

                    Biography for Frank L. Fernandez
    Dr. Fernandez' experience and knowledge encompasses a very broad 
range of research and management areas. He has worked with both large 
and small research groups and successful start up research companies. 
He, personally, founded and helped manage several successful research 
and development companies.
    At present, he is a member of the Board of Directors of several 
companies and leads a consulting company with clients in both the 
defense and civilian research and development sectors.
    Prior to this he was a Distinguished Research Professor in Systems 
Engineering and Technology Management at Stevens Institute of 
Technology in Hoboken, New Jersey. He was the creator and first 
Director of Institute Technology Initiatives, a position reporting 
directly to the President. In this capacity he served as the chief 
technical advisor to the President in all matters having to do with 
Institute research initiatives, management of Institute intellectual 
property and commercialization of Institute technology. He retired from 
Stevens in 2005.
    Prior to this, he was Director of the Defense Advanced Research 
Projects Agency (DARPA), the central R&D organization of the Department 
of Defense. Dr. Fernandez was appointed as Director of DARPA on May 10, 
1998. Under Dr. Fernandez' leadership, DARPA served as the Department 
of Defense's premier change-leader, trailblazing paths in biological 
warfare defense, information security, precision strike and robotics.
    Until his appointment as Director, DARPA, Dr. Fernandez held the 
position of President and Chairman of the Board of Directors for AETC 
Inc., a firm specializing in environmental surveillance, which he 
founded in 1994. Prior to this position, he was President and Chairman 
of the Board of Directors of Arete Associates, a Los Angeles-based 
applied research firm that Dr. Fernandez founded in 1976. Arete 
Associates has a national reputation in the use of advanced sensors and 
signal processing for the detection and classification of concealed 
targets. From 1975 to 1976, he served as Vice President at Physical 
Dynamics Inc., and from 1972 to 1975, he worked as a Program Manager 
for R&D Associates. Before that, Dr. Fernandez worked for the Aerospace 
Corporation and the Lockheed Corporation, specializing in re-entry 
physics problems associated with missile defense.
    Dr. Fernandez was a member of the Chief of Naval Operations (CNO) 
Executive Panel from 1983 until his appointment at DARPA. In this 
capacity, he provided advice to the CNO on a variety of issues. He was 
Director of the Green Foundation, a non-profit endowment for Earth 
Sciences from 1995 to 2000 and is listed in Who's Who in Science. Dr. 
Fernandez is also a member of the New York Academy of Sciences.
    In May 2000, Dr. Fernandez was awarded the Renaissance Engineering 
and Science Award by Stevens Institute of Technology. In January 2001, 
Dr. Fernandez was awarded the Distinguished Public Service Award by the 
Secretary of Defense. Dr. Fernandez has been awarded an Honorary Doctor 
of Engineering Degree from Stevens Institute of Technology in May 2001.
    Dr. Fernandez received his Bachelor of Science in Mechanical 
Engineering and Master of Science in Applied Mechanics from Stevens 
Institute of Technology in New York, 1960-1961; and his Ph.D. in 
Aeronautics from California Institute of Technology in 1969.

    Chairman Boehlert. Thank you very much.
    Dr. Cotell.
    Okay. Here is what we are going to do. We have got a call 
of the House. We will finish your testimony. Some people may 
wonder why I don't be more arbitrary with the five-minute rule. 
I am with Administration witnesses, because quite frankly, we 
know what they are going to tell us. They are going to tell us 
what a great job they are doing and all of that sort of thing. 
And in many cases, that is exactly the case. But you, we just--
you have got--you are more objective in your presentations, and 
that is what we learn from.
    Dr. Cotell.

STATEMENT OF DR. CATHERINE COTELL, VICE PRESIDENT FOR STRATEGY, 
        UNIVERSITY AND EARLY STAGE INVESTMENT, IN-Q-TEL

    Dr. Cotell. Chairman Boehlert, Ranking Member Gordon, and 
Members of the Committee, thank you for the opportunity to 
speak with you this morning.
    The National Academy study that recommended the formation 
of ARPA-E, also suggested that the Committee might look at In-
Q-Tel as a model of elements of which you might want to emulate 
in forming your ARPA-E.
    So for those who don't have Chairman Boehlert's familiarity 
with In-Q-Tel, let me spend a couple of minutes describing our 
mission, how we accomplish that mission for the intelligence 
community, and to make some observations about how In-Q-Tel's 
model might apply in the case of the Department of Energy's 
challenges.
    In-Q-Tel is a non-profit, independent, strategic venture 
capital firm founded in 1999 by the CIA. We are presently 
funded by several agencies in the intelligence community, 
including the CIA, the DIA, FBI, National Counterterrorism 
Center, and the National Geospatial Information Agency. These 
agencies are limited partners.
    In-Q-Tel invests in commercial companies that are producing 
technology products that are relevant to the intelligence 
community's mission. If you were to compare the CIA with any 
Fortune 500 company, what you would find in information 
technology is almost a complete overlap and the need for 
software to gather, analyze, sort, and distribute knowledge. So 
In-Q-Tel's approach is, rather than form a government-only 
solution to that challenge, is to look to industry and to 
invest in small start-up companies that are producing product 
for that commercial market and bring those products back into 
the government via investment. And typically, those companies 
are not actually focused on the government market.
    What we can do as an investor is actually buy the product 
development roadmap so that the products will, in fact, meet 
the needs of the intelligence community as well.
    The advantages to that are fairly clear: lower costs, 
easier integration, longer technology lifetimes, new versions 
that come out, all leveraged with success in the commercial 
marketplaces.
    In-Q-Tel is overseen--our activities are overseen by an 
exception Board of Trustees. In fact, Norm Augustine, who is 
the chair of the National Academy's panel, is on our Board. We 
rely on an interface center at the CIA, known as the QIC. They 
provide us with insight into the end-user's needs, and that is 
a very important element of our operations. They also serve as 
the executive agent for the other agencies, letting us know 
what their challenges and pain points are.
    In In-Q-Tel's six-year history, we have reviewed over 5,500 
business plans. We have invested in 90 companies. We have 
delivered 130 technology solutions to our intelligence 
community limited partners. And I think, very significantly, we 
have returned about $15 million into our investment pool from 
the returns on our early investments. And those returns are 
being used to further the support of the intelligence community 
mission.
    Just to give you a little bit of--compare and contrast with 
DARPA, and I defer Dr. Fernandez's first-hand account of DARPA, 
In-Q-Tel is a private firm, whereas DARPA is a government 
agency. I think that I can say that DARPA funds very forward-
looking research aimed at radical innovations that will be 
represented in products. And they, of course, focus on the DOD 
mission.
    In the case of In-Q-Tel, we generally invest in companies 
that are already producing product. And we are, in that case, 
really looking for both commercial success and relevance to the 
intelligence community's mission. In some cases where we do 
feel that there is a compelling need in the intelligence 
community and we find a robust technology but there is not yet 
a company, we will work to spin a company out around that 
technology, but only if there is a compelling commercial 
market.
    In-Q-Tel's venture capital model is not a substitute for 
basic research. Rather, what we do is leverage government and 
private sector investments in research. In fact, for every $1 
that In-Q-Tel invests, $8 of private investment are leveraged 
in order to bring products to the market that the intelligence 
community can purchase.
    The majority of our companies actually have their roots in 
fundamental research that was funded by NSF, DOE, ONR, and 
DARPA.
    On the development timeline from conception of an idea to 
that commoditized product, we don't--we typically enter, more 
or less, at the point where a working prototype can be 
demonstrated. So we are later stage, typically, than when DARPA 
gets involved. And in some cases, we will provide very directed 
gap funding to bridge the , so-called, ``valley of death'' that 
occurs at about the time that the fundamental research funding 
is declining and before the point at which a technology is 
mature enough to be represented in an acquisition program, for 
example.
    So the question has been raised a couple of times this 
morning as to whether a DARPA model or an In-Q-Tel model would 
apply in the case where the government is not the customer. And 
I can certainly that being able to offer the intelligence 
community as early adopters and customers, i.e., revenue 
generators, to our portfolio companies and to our co-investors 
is a huge value proposition that In-Q-Tel brings. And that 
wouldn't necessarily be the case in the energy market.
    I would note by contrast that the market, in the case of 
energy, is really very diverse. It ranges from the individual 
consumer who is going to buy an alternative fuel vehicle to 
large utilities who are providing power to the grid. And in 
that case, also, there is no single procurement vehicle as 
there is in the case when the government is the buyer. And I 
would also note, as others have, that policy and economic 
factors greatly influence the size of that market. And in that 
regard, I think that it might be instructive to look at 
healthcare as an example. So in that case, rather than a sort 
of technology transfer in, to the government case, what you are 
looking at is basic research being transferred out to private 
companies who are going to produce a product. And in that case, 
too, you have the effect of policy and other influences. How 
much insurance is definitely affects the size of the market if 
I can actually afford to buy a drug or a therapy.
    So at the risk of oversimplification, when it comes to 
barriers to market entry, I think it all comes down to money, 
and whether there is money in that market will really determine 
whether companies are going to get involved.
    So I hope, in conclusion, that I have provided the 
Committee with a description of In-Q-Tel and that it is 
adequate to show the strengths of that model for the 
intelligence community. Certainly, fundamental research remains 
a requirement for creating game-changing innovations in all 
fields, including energy. And based on In-Q-Tel's success at 
using venture capital tools to accelerate the rate at which the 
intelligence community gets access to new technology, I think 
there may be some merit in considering incorporating some 
elements of In-Q-Tel into an ARPA-E, if that is where we are 
going with this.
    In particular, I think there is merit in incorporating a 
mechanism for the kind of technical and market diligence that 
In-Q-Tel conducts prior to making an investment. For example, 
the dynamics of venture capital syndicate investing could 
provide an effective commercial peer review that would be sort 
of parallel to, or at least at a later stage than, the kind of 
scientific peer review that goes on when one decides to fund a 
proposal. And in particular, I think the investor perspectives 
could inform the selection of products from those of which that 
are at the edge of the ``valley of death'' that you might want 
to consider funding to get to the point of actually making it 
into a product.
    So finally, if I may, I would like to point out that In-Q-
Tel was founded in 1999 at the height of the internet boom when 
the best and the brightest minds in this country were being 
attracted to information technology. And indeed, In-Q-Tel, 
itself, was founded to tap into that IT genius in the 
marketplace. So as the Committee considers alternative 
approaches to ARPA-E, I would like to encourage that whatever 
model you adopt that it foster a climate of entrepreneurship so 
that this decade's best and brightest will be attracted to 
energy research.
    So I thank you for the opportunity to speak with you and 
welcome any questions you might have.
    [The prepared statement of Dr. Cotell follows:]
                 Prepared Statement of Catherine Cotell

Introduction

    Good morning, Chairman Boehlert, Ranking Member Gordon, and Members 
of the Committee. I thank you for the opportunity to appear before you 
this morning to discuss the question of how the government may help 
spur innovation in the energy sector, and may best obtain access to the 
most innovative energy research and development available.
    I would like to first offer a brief description of my own 
background which may help put my remarks in context. I spent the first 
ten years of my professional life conducting research, first in 
graduate school at MIT, funded in part with DOE grants, and later at 
AT&T Bell Laboratories and the Naval Research Laboratory. Because my 
work has included issues of technology transfer, intellectual property, 
Cooperative Research and Development Agreements, and other linkages 
between researchers and the commercial sector, I had already become 
fascinated by the novel approach to technology development and 
deployment taken by In-Q-Tel prior to joining the staff in 2003. At In-
Q-Tel, I have focused on searching for nascent technologies at 
universities, federal laboratories, and other emerging sources to help 
orchestrate their commercialization for sustainable delivery to the 
Intelligence Community.

Background

    In-Q-Tel is a strategic venture capital firm that makes investments 
to benefit the United States Intelligence Community (IC). Here is how 
it works: As an independent, non-profit, government-funded firm, In-Q-
Tel engages start-ups, emerging and established companies, 
universities, and research labs to identify technology innovations and 
products that can solve the Intelligence Community's most challenging 
problems. In-Q-Tel then employs venture capital investments, often 
coupled with product development funding, to create sustainable 
technology solutions to be delivered to the Intelligence Community from 
thriving commercial companies. Our focus is on companies and 
technologies principally directed at the commercial market that also 
address the needs of our government partners, because of the 
significant benefits of commercial technologies I address below.
    In-Q-Tel is flexible in how it structures its investments to foster 
win-win relationships, providing the Intelligence Community with early 
access to emerging technologies and providing In-Q-Tel's portfolio 
companies with government business development guidance. We are very 
different than a government agency, but we are using the genius of the 
marketplace to benefit the government, and it is working. For every 
dollar In-Q-Tel invests, In-Q-Tel leverages an average of eight dollars 
of private investment to bring technologies to the market, helping to 
lower both development costs and total life cycle costs for the benefit 
of the Intelligence Community. In addition, returns to date on our 
investments have allowed In-Q-Tel to add approximately 15 million 
dollars to its investments pool which is being used to further its 
mission.
    In-Q-Tel is bound by a Charter agreement with the CIA, which sets 
out the relationship between the two organizations and which is 
supplemented by annual funding through the Intelligence Community. In-
Q-Tel is not part of the CIA and is not a government agency, but the 
five-year span of each renewable Charter agreement between the CIA and 
In-Q-Tel provides a beneficial perspective that facilitates long-term 
planning. And as a government contractor operating as an independent 
nonprofit corporation, In-Q-Tel receives regular oversight from the 
CIA, which keeps Congress informed of the company's activities.
    The company is governed by an independent Board of Trustees 
composed of former cabinet officers and officials from defense and the 
Intelligence Community, as well as CEOs of major companies, university 
leaders, and leaders of the investment industry.
    As you know, Mr. Chairman, In-Q-Tel grew out of the recognition in 
the late 1990s by the Director of Central Intelligence George Tenet and 
others that the CIA and the rest of the U.S. Intelligence Community 
needed the very best technology available to fulfill its mission. This 
led the Director to ask a group of distinguished Americans to create a 
company that would explore creative ways to access private sector 
innovation and technology development--a process, resulting in In-Q-
Tel, led by former Lockheed President and CEO Norm Augustine. Today's 
hearing acknowledges the insightful contribution to this discussion of 
the National Academies panel on American Competitiveness also led by 
Norm Augustine, and the panel's recent report, ``Rising Above the 
Gathering Storm.'' We are incredibly fortunate that Norm Augustine has 
served on our Board of Trustees since In-Q-Tel's founding, and that he 
has been joined on our Board by such visionaries as Lee Ault, Anita 
Jones, Charles Vest, Jim Barksdale, Bill Perry, and others.
    In-Q-Tel has also been the focus of a number of thoughtful studies 
that describe and scrutinize the organization, examining its structure 
and effectiveness. In one example, an assessment was made by a panel 
from Business Executives for National Security (BENS), a national, non-
partisan, and not-for-profit organization of business leaders--30 of 
whom formed the independent panel after the CIA selected BENS to 
conduct the congressionally mandated study. The report, ``Accelerating 
the Acquisition and Implementation of New Technologies for 
Intelligence: The Report of the Independent Panel on the Central 
Intelligence Agency In-Q-Tel Venture,'' was submitted to the CIA and 
Congress (www.bens.org/highlights-InQTel.html). The panel 
concluded that In-Q-Tel had achieved significant early progress and 
that ``creating a model like In-Q-Tel makes good business sense.'' In a 
second example, the Harvard Business School published a Case Study that 
examined In-Q-Tel's history, strategy, and effectiveness in the context 
of other federal technology development programs such as Small Business 
Innovation Research set-asides, the Advanced Technology Program, DARPA, 
and Federally Funded Research and Development Centers (Case 9-804-146, 
http://harvardbusinessonline.hbsp.harvard.edu).
    Since our founding in 1999, we have delivered more than 130 
technologies responding directly to CIA and Intelligence Community 
missions, bolstered by more than 90 pilot programs and more than 30 
specific technology adoptions. Technology delivered by In-Q-Tel, for 
example, makes it possible to fuse data from maps, images, text and 
other sources; visualize information in ways not previously possible; 
rapidly process vast amounts of information in multiple languages; make 
sense of seemingly unconnected information; and identify the most 
critical intelligence faster and more effectively.

The In-Q-Tel approach

    In order to help identify technology solutions that can address 
capability needs of the Intelligence Community, In-Q-Tel has a broad 
outreach policy. In addition to soliciting business plans via its web 
site www.In-Q-Tel.org, In-Q-Tel actively scouts for technologies and 
investment opportunities by capitalizing on its technology network that 
includes other venture investors, university faculty and technology 
commercialization offices, national and corporate laboratory 
researchers and their licensing offices, and program managers at 
Government funding agencies. We have also engaged with nearly 90 
commercial companies, most of which were previously unknown to the 
government, and 11 universities and research labs, which In-Q-Tel 
identified through its commercial and academic outreach programs. In-Q-
Tel has also received and subsequently reviewed over 5,500 business 
plans. As part of this outreach, we have also cultivated a network of 
more than 200 venture capital firms and 100 labs and research 
organizations, further broadening the Intelligence Community's access 
to innovative technologies.
    Before In-Q-Tel makes an investment, members of three teams conduct 
diligence to ensure that the investment is on firm footing--to use an 
analogy, three legs of a stool must be supported. The first team 
consists of CIA employees who are members of the In-Q-Tel Interface 
Center, or the ``QIC'' (pronounced ``quick''), which serves as the 
executive agent for our interaction with partners throughout the 
Intelligence Community. The QIC leads an annual and ongoing ``problem 
set'' definition process through consultation with end users throughout 
the Intelligence Community, to ensure that the solutions being 
evaluated by In-Q-Tel experts are likely to be adopted by users among 
our government partners. The QIC provides In-Q-Tel with knowledge about 
the technology needs of the CIA and other government partners in the 
Intelligence Community through regular and ongoing discussions with the 
leadership, the policy-makers, and the operators in our partner 
organizations--and together we have established an extensive 
demonstration, pilot, and adoption program to facilitate technology 
transfer.
    The team responsible for the second leg of the stool consists of 
In-Q-Tel's staff of technology experts who vet each technology 
opportunity against Intelligence Community needs, comparing alternative 
approaches and validating technical claims to ensure the technical 
robustness of the solution.
    The third leg of the stool is the responsibility of In-Q-Tel's 
venture team members who examine the commercial market, review the 
company's business plan and evaluate the management team to gauge the 
potential for long-term success in the market.
    One of the strengths of the venture investing model is that In-Q-
Tel's own technology, market, and business assessments are validated by 
the diligence conducted by its co-investors. Over the six years that 
In-Q-Tel has been in operation, In-Q-Tel has developed a reputation for 
conducting among the most rigorous technical due diligence in the 
investment community, and In-Q-Tel has found that other investors rely 
on In-Q-Tel's assessment of the soundness of technologies it examines.
    Most of In-Q-Tel's investments involve evaluation of opportunities 
in which the technologies are already being commercialized by start-up 
companies. In the Information Technology arena, for example, comparing 
the CIA and our other government partners with any Fortune 500 company, 
one finds a 70 to 90 percent overlap in information technology needs 
for collecting, sorting, analyzing and distributing knowledge. Rather 
than seeking point solutions or one-off custom products designed 
explicitly for the Intelligence Community, In-Q-Tel invests in 
companies that build successful technology solutions intended for the 
high growth commercial market and introduces these solutions to the 
Intelligence Community.
    In some cases, however, In-Q-Tel engages at a very early stage, 
before the technology has been spun out of the laboratory. In those 
cases in which the technology and the commercial market are robust and 
the Intelligence Community need for the solution is critical, In-Q-Tel 
will strategize to move the technology from the laboratory into a spin 
out, by assembling a management team and providing seed funding. In-Q-
Tel uses its network in the venture community to assist with these 
activities and will engage only if the spin out can address a 
substantial commercial market.

The roles of In-Q-Tel and DARPA contrasted

    As the Committee has noted, some have suggested that an ARPA-E 
should be designed to foster directed basic research, and other 
proponents suggest its role should be to get products into the 
marketplace. In-Q-Tel was founded to address a specific and unique 
challenge that is somewhat related: namely, how to provide the U.S. 
Intelligence Community with access to the technology innovations being 
brought to the commercial market by small, start-up companies, or other 
sources of innovation such as national labs and universities, who may 
not target the government for sales. Like any other venture investor, 
In-Q-Tel ``cherry picks'' technologies with high potential for 
commercial success. Because In-Q-Tel is a strategic investor for the 
Intelligence Community, In-Q-Tel selects from the entire range of 
commercially viable technologies those that have relevance to 
Intelligence Community mission.
    In-Q-Tel's venture capital model is not a substitute for 
fundamental research funding, but rather leverages government and 
private sector investments in research. In fact, the majority of the 
companies in which In-Q-Tel has invested have their roots in 
fundamental research conducted at universities and laboratories 
supported by NSF, DOE, ONR, and DARPA. Moreover, before the products 
are delivered back to the government, other private investment capital 
in addition to In-Q-Tel's has been invested in the companies, 
leveraging additional private sector resources to deliver a better 
product to government.
    As you know, Chairman Boehlert, the President's Science Advisor, 
Dr. John Marburger, testifying to your committee just last month 
alongside Secretary of Energy Samuel Bodman regarding the 2007 budget, 
noted the critical role that basic research plays as the foundation of 
our nation's economic competitiveness--a message President Bush 
supported in his State of the Union address through the announcement of 
his American Competitiveness Initiative and the Advanced Energy 
Initiative. The American Competitiveness Initiative calls for a 
doubling, over ten years, of the support of basic research in the 
physical sciences funded through the National Science Foundation, the 
National Institute for Standards and Technology, and the Department of 
Energy's Office of Science; and the Advanced Energy Initiative provides 
for a 22 percent increase in clean-energy research at the Department of 
Energy. These initiatives reflect the need to accelerate our 
breakthroughs in the vital arena of energy independence and innovation 
which your committee is focusing on now.
    On the development time line from incipient idea to fully 
productized, off-the-shelf commodity, In-Q-Tel typically engages 
sometime after the demonstration of a working prototype. That is, In-Q-
Tel does not typically invest in early research the way that DARPA or 
other government funding agencies do, but rather, takes the output of 
early research and supports its development into technology products 
and sustainable commercial outlets from which to buy those products. In 
some cases, In-Q-Tel provides very directed ``gap funding'' to assist 
in bridging the so-called ``valley of death'' between the basic 
research funding and the point at which the technology opportunity is 
sufficiently mature as to readily attract institutional investors or, 
in the case, of DARPA, be ready for delivery under a DOD procurement or 
acquisition program.
    As an investor, In-Q-Tel can influence the product development 
roadmap to ensure that the commercial products will indeed meet the 
Intelligence Community's needs while adding value for the commercial 
customers as well. Among the advantages of commercial technology are 
lower initial and long-term costs, easier integration, longer 
technology lifetime, faster development, better user interfaces, 
incremental upgrades, and next-generation improvements, all developed 
by leveraging success in the commercial marketplace. Our success stems 
from linking commercial viability and technical excellence with our 
government partners' needs.

When government is not the primary or early user of a technology

    One of the elements that In-Q-Tel considers essential for its 
success is a deep understanding of our government partners' needs, 
challenges, and pain points, which we derive through our interactions 
with the QIC and the interface centers at other various agencies we 
work with. Indeed, being able to offer the U.S. Government Intelligence 
Community agencies as potential early adopters of the technologies is a 
unique value proposition In-Q-Tel brings to its portfolio companies and 
co-investors. These early revenue opportunities coupled with the 
validation by a discerning customer are quite useful as these companies 
work toward commercial market penetration.
    By contrast, the ``customers'' for the products of energy research 
are diverse, ranging from the individual consumer who buys an 
alternative fuel vehicle to the large utility companies who provide 
power to the grid. That is, there is no single procurement mechanism, 
and this market can be significantly impacted by policy and regulation 
that may provide incentives or disincentives to early adoption.
    From the customer perspective, the challenge that motivates the 
formation of an ARPA-E is similar to that faced by the National 
Institutes of Health (NIH). The fundamental research funded by NIH must 
be transferred to the commercial sector for maturation and 
productization before the customer (ultimately the taxpayer who has 
need of a therapy) can benefit. The pathway from research to product in 
the case of health care typically involves costly and time-consuming 
clinical trials supported by private investment dollars invested with 
the expectation of return in the form of profit from lucrative sales in 
the pharmaceutical or medical device markets. Moreover, similar to the 
energy sector, the health care sector is strongly impacted by external 
factors such as cost reimbursement (insurance) that can serve as 
incentive or disincentive to making such investments.

Barriers and incentives

    At the risk of oversimplification, and assuming a healthy supply of 
new technologies being created as a result of basic research funding, 
the barriers to such new technologies being brought to the market can 
all be distilled down to one factor: money in the marketplace. 
Companies will only take on the task of productizing a new technology 
if there is a high probability that they will make money selling the 
product. That statement is true regardless of whether the customer for 
the product is the government or the wider commercial market.
    Returning to the NIH example, a company is likely to productize a 
new therapy only if there is a likelihood that they will make money 
selling the therapy; that is, the patient population is large enough 
and both willing and able to pay for the therapy and the cost margins 
are such that the company will make a profit. The health care market, 
like the energy market, is subject to influence by policy initiatives; 
an example would be expanding health insurance coverage to enable 
patients to pay for new therapies which would have the effect of 
increasing the size of the market and the probability that a company 
entering that market with a new therapy could make money. The market in 
the energy sector is subject not only to influence by policy 
initiatives but also by global economic trends.
    One of the observations that led to the founding of In-Q-Tel is 
that if the government is the only customer and the government has a 
critical need for the product, there is a higher likelihood that the 
government will overpay relative to the situation in which the 
government's critical needs can be satisfied with a product that can 
also be sold in the larger commercial market. In-Q-Tel was designed to 
ensure that the government can get access to commercial products that 
will address the government's critical needs at the lowest cost and 
greatest impact possible. In-Q-Tel does not invest in companies that do 
not have a commercial market; the In-Q-Tel model does not apply to 
those cases.

The In-Q-Tel model as part of the solution

    I hope that in this discussion I have been able to describe the 
strengths of the In-Q-Tel model for responding to specific needs within 
the Intelligence Community. Certainly, fundamental research remains a 
requirement for creating game-changing innovations in all sectors, 
including energy. Based on In-Q-Tel's success at using venture capital 
tools to accelerate the rate at which In-Q-Tel's customers get access 
to new technologies, this committee may wish to consider incorporating 
into the design of ARPA-E some elements of the In-Q-Tel model to assist 
with bridging the gap between basic research and commercial viability. 
We can summarize our approach as follows. By utilizing equity 
investments, sometimes coupled with work programs and market guidance, 
In-Q-Tel fosters the development of strong companies which produce 
commercially viable technologies that at the same time solve critical 
Intelligence Community mission challenges. There may be parallels for 
the energy market.
    Note, however, that the general direction of In-Q-Tel technology 
transfer is from the commercial side to the government (tech transfer 
in), while the technology transfer challenge for energy is in many 
cases to convert energy research into products that can be sold 
commercially (tech transfer out)--to a customer set, or market, that is 
more diverse and fractured that in the Intelligence Community, 
requiring an examination of the implications for the value proposition 
to the portfolio company.
    There may be merit to incorporating into ARPA-E a mechanism to 
provide the kind of technical and market diligence, aimed at commercial 
viability, that In-Q-Tel conducts prior to making its investments. This 
kind of diligence based on investor perspectives could be very valuable 
in informing the selection of research projects for continued 
development with ARPA-E support. There is a lot to be said for the 
screening that accompanies investing one's own capital in a project, 
and the dynamics of a venture capital investing market can provide 
effective commercial peer review that for technologies at a later stage 
of maturity (at the edge of the ``valley of death'') parallels the 
benefits of scientific peer review that occurs on the basic research 
and development end of the spectrum.
    Returning to the analogy of a stool that for stability requires all 
three legs to be well-supported, it is a third leg--the customer 
input--that would necessarily differ in the energy market from the In-
Q-Tel model because of the diversity of the customer base, the lack of 
a single procurement mechanism and the susceptibility of the energy 
market to manipulation by policy initiatives and global economic 
events.

Conclusion

    Again, I thank the Committee for the chance to speak with you 
today, and I congratulate you for tackling the crucial national need 
for groundbreaking innovation in the energy market. Creating additional 
avenues for basic science and for commercial opportunities may help 
attract the best and the brightest to energy research, as it has in the 
past to such historic efforts as the space race of the 1960s and the 
Internet boom of the 1990s.

                     Biography for Catherine Cotell
    Dr. Catherine M. Cotell received her B.A. in chemistry and 
mathematics from Wellesley College and her S.M. and Ph.D. degrees from 
the Massachusetts Institute of Technology in metallurgy and materials 
science and engineering, respectively. After two years as a member of 
technical staff at AT&T Bell Laboratories, Dr. Cotell joined the staff 
of the U.S. Naval Research Laboratory (NRL), where she conducted 
research in surface modification and thin film coatings for electronic, 
optical and biomedical applications. She joined the staff of the 
Technology Transfer Office at NRL in June of 1997 and assumed the 
position of head of the Office in April of 1999. As head of Technology 
Transfer, she evaluated, managed and marketed NRL's intellectual 
property portfolio, negotiated Cooperative Research and Development 
Agreements (CRADAs) and patent license agreements, and facilitated 
collaborations and interactions between NRL researchers and the 
commercial sector. In July of 2003, Dr. Cotell joined the staff of In-
Q-Tel, the venture catalyst for the Central Intelligence Agency (CIA) 
as Vice President for University Outreach. Dr. Cotell launched In-Q-
Tel's University and Federal Laboratory Outreach program to search for 
emerging technologies at universities and federal laboratories and 
orchestrate their commercialization for sustainable delivery to the 
Intelligence Community. Dr. Cotell's responsibilities at In-Q-Tel have 
expanded to include providing strategic direction for the company as 
Vice President for Strategy, University and Early Stage Investment.


                               Discussion

    Chairman Boehlert. I thank you, and I thank all of you for 
being persons of vast information for us.
    Now we have got to respond to the call of the House for a 
vote. I think we should be 15 minutes or less. The staff will 
talk to you about the comforts of our lounge. It is not 
luxurious, but at least it is there. And we will try to 
accommodate you on a coffee or some sort of liquid. And we will 
be back in about 15.
    [Recess.]
    Chairman Boehlert. The hearing will resume.
    I wish we had note takers back in the lounge, because my 
understanding is while we were over voting, we had rather 
spirited and very interesting conversation among our panelists. 
And that is what we are here to encourage.
    Let me start out by asking all of you this.
    You know, I know that most of you support, with some 
obvious exceptions, Dr. Mowery, the establishment of ARPA-E, 
although, for somewhat varying purposes and with somewhat 
varying qualifications. And as I mentioned in my opening 
statement, we are faced with setting priorities, and Dr. Chu, 
as you noted, new money you would like if we have this ARPA-E.
    So let me ask all of you. If we have to make a choice, and 
we have to make choices around here all of the time, we are--at 
least I am inclined to agree with the panel and the report, 
that the highest priority is for the Office of Science. We have 
got a 14 percent increase, about a $500 million figure 
increase. And you are saying that about $300 million would be 
the minimum to start. So would you support an ARPA-E if the 
money proposed came from the Office of Science?
    Dr. Chu, I think I have your answer.
    Dr. Chu. Yeah, it is very simple: no.
    Chairman Boehlert. Yeah.
    Dr. Mowery.
    Dr. Mowery. No, I think it would be interesting to see 
whether some of the design principles that motivated the panel 
to suggest an ARPA-E could be incorporated into the management 
of a portion of the funding increases requested for the DOE 
generally, for the civilian side of DOE.
    Chairman Boehlert. Ms. Kenderdine.
    Ms. Kenderdine. I would not support taking money out of the 
Office of Science to fund this if it were insufficiently 
funded. I think I said in my testimony, you can't set this 
program up to fail. And I assume that the Academy knew what it 
was talking about when it recommended certain funding levels. 
And there has to be a critical mass in order to make a 
difference. This is supposed to be transformational. And 
insufficient funding would constitute a failure, and I wouldn't 
support that.
    Chairman Boehlert. Thank you.
    Dr. Fernandez.
    Dr. Fernandez. I think I agree. Insufficiently funding two 
activities instead of sufficiently funding one is the worst of 
all management decisions.
    Chairman Boehlert. Thank you very much.
    Dr. Cotell.
    Dr. Cotell. I would third that. I don't claim to know 
enough about the Office of Science's operations, but from my 
perspective where we are trying to transition technology, you 
can't dry up the pipeline. It is critical to have that basic 
work done.
    Chairman Boehlert. Thanks very much.
    Now the next question is an obvious one.
    What makes you think that we could insulate ARPA-E from 
energy politics as they try to challenge incumbent 
technologies? I mean, that is a tall order to fill.
    Dr. Chu.
    Dr. Chu. You are right. It is a tall order. I look to the 
leadership of Congress.
    Chairman Boehlert. Thank you.
    You know, I am just reminded of the fact, and when we--our 
professional staff and I sat down and started talking about 
this hearing, and the supply demand, I said, ``Look. We have 
got technology right now, off the shelf to make automobiles 
more fuel efficient. I think we are nuts for not doing it.'' 
And I have, year after year, offered an amendment to various 
legislative initiatives to increase CAFE standards. I mean, we 
don't have to go out and invent something new. And so--yeah.
    Dr. Mowery, what do you think?
    Dr. Mowery. Well, I think it is very difficult to insulate 
it. I think, as your question suggests, one of the problems, 
historically , has been that changing priorities and changing 
prices tend to produce an ebb and flow both of funding and of 
interest and also priorities. And the result is that we are not 
moving things out as rapidly as we could into use.
    Chairman Boehlert. You know, Ms. Kenderdine, she put it 
very well, ``Picking winners threatens to strand existing 
industry assets.'' And that, perhaps, is why the head of 
ExxonMobil dissented from this recommendation.
    Anything you would care to add on that one?
    Ms. Kenderdine. I am not surprised that ExxonMobil was a 
dissenter. They have never supported anything that I have 
supported, but the--it is very difficult. I would just urge the 
Committee to consider how imperative it is that we invest in 
new ways of doing business, and that, at some point, if you 
empower a research organization in a way that assures that it 
will pick the best winners, that might be what we need to be 
doing right now.
    Chairman Boehlert. Dr. Fernandez.
    Dr. Fernandez. Like I said at the beginning, I am not much 
of an expert in the energy business, but I can tell you this. 
For the experts, if it turns out that the next 30 years we 
think is a time where there is going to be major changes in the 
energy markets, okay, which will put the United States in funny 
positions and that technology could help us maintain a 
favorable position there, then I think that becomes the major 
justification for looking forward as compared to worrying about 
the two-years-from-now problem, the way the companies are 
thinking now.
    Chairman Boehlert. Thank you.
    And Dr. Cotell, anything you care to add?
    Dr. Cotell. I think, again, from In-Q-Tel's perspective, 
which is that of a kind of novel experiment that was started, a 
long-term commitment is important. And inasmuch as politics 
might impact that, I would say if you do this, you have to 
commit to it for a few years and make sure that you give the 
organization time to be strategic in what it does and to morph 
its model a little bit to make sure that it does the right job.
    Chairman Boehlert. Thank you.
    Mr. Gordon.
    Mr. Gordon. Mr. Chairman, I was shocked, shocked to hear 
you say that the Chairman of ExxonMobil voted against looking 
at alternative fuels. You know, that--I am just--I am--I don't 
know what to say. I mean, it follows along that cow commercial 
that says, ``Eat more chicken.'' I mean, of course that is 
what--you know, it is a corporate policy not to go into that 
kind of research development.
    Let me move to another area.
    I think most folks--they will say it, and they probably 
agree with it, that a part of national--our national defense is 
reducing our dependency on foreign oil. Saying it and then 
trying to believe it and then doing something seems to be 
something else, and I think that we need to take it a little 
bit further.
    The wrong question was put to you earlier in that where 
would you shift funds around the Department of Education or the 
Department of Energy. That was the wrong question. The right 
question is would you rather put more money in looking at 
alternative fuels and energy dependency than having your 
capital gain stay at 15 percent rather than go to 20? Would you 
rather spend more money in the area of education--or rather of 
energy than spending $50 billion on a Star Wars program that 
has never once demonstrated that it works? You know, would you 
rather spend some more money on energy independence than you 
would on other super-duper weapons systems that--when we don't 
have a major power that is opposing us? Now--you know, so you 
were given the wrong question.
    Now let me ask you the question. Do you think it might be 
worth rearranging some of our priorities to invest more in 
energy dependency--independency?
    Dr. Chu. Well, that was the very strong opinion of the 
Augustine Committee. It wasn't--we were never thinking you take 
money out of basic research in the Office of Science and move 
it over into ARPA-E, but within the vast amounts of money that 
the U.S. Government funds in total, $1 billion is not much, 
considering the stakes that are involved. And----
    Mr. Gordon. Well--yeah, we are not going to spend time on 
this. If anybody would like to disagree with Dr. Chu, just 
raise your hand, otherwise--would you? Okay. Okay. Then we will 
just assume that everybody thinks that this would be a priority 
that we should look elsewhere and that we should not be putting 
the bind of cannibalizing ourselves.
    Let me now move to my final question, because I have a 
limited amount of time.
    There seems to be a general consensus that an ARPA-E 
program would be beneficial, if it was done right, and 
everybody can decide, you know, how--what is ``done right.'' I 
was talking to Mr. Bartlett--Dr. Bartlett coming over here, and 
you know, we also share that same kind of concern about are you 
going to get it right? But if you don't do something, we are--
we really have a problem. And so I think that we need to move 
forward, and hopefully we will get it right.
    The bigger question was this area of demand. And you know, 
will there be a market for this, and what do we--where do we go 
with it? So Dr. Chu gave us some suggestions about the type of 
research that he would like to see go forward. Let me ask a 
question in general. How do we address this demand issue? I 
will just leave it at that.
    Dr. Chu. Okay. I know----
    Mr. Gordon. You can go ahead, and then we will just flip it 
down through.
    Dr. Chu. Okay. Let me give you a good example.
    The--clean coal. We need to develop clean coal 
technologies. The--not only for us, but for the entire world, 
because the countries that have the most coal supplies are the 
United States--in this order: United States, China, India, 
Russia. And it would be very difficult for those countries, 
including us, to turn our back on coal, if it is there. So we 
need to develop clean coal technologies.
    If a carbon tax or a carbon cap and trade is not put in 
place, right now the gasification of the coal and the capture 
of the CO2 and the sequestration is estimated to be 
roughly 30 percent higher, or maybe more, but of that order. 
There will be no industry incentive for the next coming 
decades.
    In the meantime, if industry invests in the next one or two 
decades in conventional coal plants, you will have cast the die 
for the next 40 or 50 years. So in this case, regulatory tax, 
whatever, fiscal policy, is very important. Then industry will 
be very motivated to develop efficient coal.
    However, there still needs to be an ARPA-like component to 
this. Why? Because of sequestration. Right now, oil companies, 
BP, for example, is using carbon sequestration to use it for 
enhanced oil recovery. So as they bring out--natural gas, for 
example, has a lot of extra CO2. They will pump that 
CO2 back in to get more oil back out of the ground. 
But they would probably not do research in sequestering carbon 
dioxide in the major potential reservoir, namely in the salt 
water beds deep under the Earth. That is something the 
Department of Energy or--should have to do initially until it 
looks like it might be able. But say--that is something that is 
a long-term research project you don't see industry investing 
in for the next decade.
    Mr. Gordon. Okay. Let us just go on down the line.
    Dr. Mowery. I agree with Dr. Chu that some set of policy is 
a combination of fuel economy standards, carbon taxes, other 
fiscal or tax-related policies is essential in order to 
complement the necessary investments in R&D on the supply side, 
if you will, with the creation of stronger market signals for 
adoption on the demand side.
    We tax cigarettes heavily, and taxes on cigarettes have 
gone up substantially in the last decade, precisely because of 
a political consensus that growth in consumption of cigarettes 
is dangerous to the public health and to the larger welfare of 
the citizens. Energy, I think, has a very similar set of 
arguments underpinning it. We--tax it more heavily with a 
recognition--in the recognition that continued growth in 
consumption on the current trends is toxic, from a national 
security, environmental, and economic perspective.
    Mr. Gordon. You mean as they have done in Europe and most 
every other country in the world?
    Dr. Mowery. Precisely.
    Mr. Gordon. Okay.
    Ms. Kenderdine. The recent data shows gasoline prices have 
doubled and gasoline consumption has gone up. And so, from an--
from a gasoline/oil perspective, the size of the tax that you 
would have to impose would pale in comparison to new--you know, 
new money at a billion dollars to fund an ARPA-E program. It 
would be politically unpalatable, very, very difficult to do, 
in any environment. And so I think you need other kinds of 
market conditioning than a huge tax on gasoline, for example, a 
carbon cap and trade carbon tax is a way to spread that 
incentive, shall we say. There are a whole host of market 
pushes and pulls that we need. The technology development, the 
R&D that we all want to see invested in as necessary, it is not 
sufficient. That is kind of another stove-piping problem within 
the government. All of those policy imperatives are established 
at different locations in the government, and they are not 
sequenced with the investments that we are making in R&D.
    Mr. Gordon. Excuse me. If we could--I know we need to move 
along. I just wanted to get the others.
    Again, the question goes back to are we going to have, 
unlike with the Defense Department where you have a built-in 
market, is this going to be useless since we don't have a 
market here?
    Dr. Fernandez. The one thing I think is different, and I am 
not sure how it is going to progress in the future, is in this 
world now of energy, there are at least two emerging powers 
with insatiable appetites for energy. And I think that is going 
to change the whole dynamic of energy markets. I don't know 
how, because I am not an expert, but I can start to see some 
areas where if the United States doesn't start thinking ahead 
and doing things that take long-term investment, all of a 
sudden we are going to be buying some of our technology from 
other places, critical to our energy, and I am not sure if that 
is in the best interest of the United States.
    Dr. Cotell. I really don't have a lot to add, and I haven't 
studied the energy market. What I have studied is the, sort of, 
dynamics of small companies entering markets. And I think there 
are some good examples here where, you know, if I can drive on 
the HOV lane, I am incentivized to buy an alternative fuel 
vehicle. And I think, maybe in conjunction with an ARPA-E, 
where your focus is really developing the innovations, and I 
hope working to transition those innovations, that you can 
experiment with some of the policy incentives that you would 
provide to companies to get into the market.
    Chairman Boehlert. Thank you very much.
    The gentleman's time has expired.
    Ms. Biggert.
    Ms. Biggert. Thank you, Mr. Chairman.
    I am a strong advocate of the advanced fuel cycle for 
nuclear, and I think that is something that we really have to 
address right away and work on. And I think the Science 
Committee has been trying to bring attention to the problems 
that the Department of Energy faces with developing and 
deploying a fully integrated advanced nuclear fuel cycle. So--
but I have been pushing to have the nuclear energy program to 
conduct a comprehensive and rigorous systems analysis of the 
advanced fuel cycle, because all of the technologies in the 
nuclear power system have to work together.
    I would like to start with Dr. Chu and ask you how--could 
you kind of walk through how ARPA-E would be a better solution 
than the improved planning and analysis and prioritization of 
the existing programs?
    Dr. Chu. Yeah. Okay.
    There are two things. First of all, the current existing 
technology around the world, there are light water reactors. 
The current utility companies are--will not place orders for 
anything other than light water reactors, unless they have some 
assurances that a new technology will come to being. Now in the 
short-term, the Department of Energy is building a test reactor 
at Idaho National Lab to test a new, so-called, pebble bed 
reactor that is ceiling gas cooled. It has been--these have--
designs have been out there for a decade or more, but there 
hasn't been a real solid test of the robustness of this. That 
is an intermediate--very--it is a short-term, intermediate 
thing that you--that, we see, can go into the marketplace 
hopefully within, you know, five or six years, or less than 10 
years.
    Now if you go to the larger issue, and--of complete fuel 
cycling, if you say that we are going to have only one 
repository, like Yucca Mountain, the capacity would--of the 
statutory limit would be over--it would be filled up by----
    Ms. Biggert. 2010.
    Dr. Chu.--2010----
    Ms. Biggert. Right.
    Dr. Chu.--and the physical limit by 2020, meaning the 
thermal limit. There are possible technologies that you use 
faster neutrons, design a small subset of reactors to burn down 
the waste products, and especially to decrease the lifetime of 
the nuclear--the spent waste products from--so it becomes 
something from a couple hundred thousand-year storage problem 
to a 500-year problem. There is a possibility there, and this 
long-term research and the simulation of these faster neutron 
reactors is something where--that would be something I could 
see going to ARPA-E.
    Ms. Biggert. But they are already working on----
    Dr. Chu. They are working at it, right. But it depends. I 
mean, right now, there is a----
    Ms. Biggert. I guess the question I am asking is how would 
ARPA-E do it better than the programs that are trying----
    Dr. Chu. Well, I wasn't really thinking of ARPA-E in terms 
of the nuclear sense.
    Ms. Biggert. Okay.
    Dr. Chu. I was thinking more of ARPA-E of initially like 
the analogy of a venture capital fund. One--these problems, 
like ITER, like nuclear fuel cycling and all of these other 
things that are now well identified, you can assert to 
establish a mechanism, you know which way to march, but if you 
want to develop a totally new plan that would replace this corn 
in--for growing energy, that is more out of the box or a 
totally new technology. And so I--we are thinking of ARPA-E as 
mostly funding things like that, just totally off the wall, 
like the old DARPA did.
    Ms. Biggert. But isn't that still a transformational 
technology to move the nuclear?
    Dr. Chu. It is, but--and--but I think the Department of 
Energy sees this as one of its priorities and is moving forward 
with its current resources. But there is--we are not--I guess 
what I am saying is we are not fully tapping the basic science, 
both within the Department of Energy and within the NSF, within 
NIST. We are not--there is a potential for recruiting some of 
the best and brightest young scientists, who, just as we 
recruited them in war time to work on the radar and the bomb, I 
think many scientists are beginning to wake up and say, ``This 
is so important that I really want to work on this.''
    Ms. Biggert. Don't we need something really like the 
Sputnik, too, I mean, to bring all of this together with 
nuclear energy?
    Dr. Chu. Well, that is the trouble. We are not--we don't 
have a sudden thing like Nazi Germany or Sputnik.
    Ms. Biggert. Maybe that is fortunate, but----
    Dr. Chu. It is fortunate, but we are in a slow boil mode, 
and I am so glad, starting with the President and his 
initiatives and--but with all of the forces at work here, that 
we are beginning to wake up, even though there is not a sudden 
emergency, it is an emergency.
    Ms. Biggert. Well, maybe the ``Gathering Storm'' is really 
a good analogy. And I am glad to see that you have some 
connection to Stanford, my alma mater, because I was worried 
about the two--the both of you sitting there from Berkeley, and 
you know, it brings back old competition.
    Chairman Boehlert. Thank you very much.
    The gentlelady's time is expired.
    Dr. Mowery. All of my degrees are from Stanford.
    Chairman Boehlert. Mr. Honda.
    Mr. Honda. Thank you, Mr. Chair.
    And I think Stanford is well represented here, in terms of 
background. My--so you know----
    Dr. Fernandez. You have got one over here, too.
    Mr. Honda. And it is all from the San Francisco Bay area. 
So that is good, too.
    I found the discussion by all of you very interesting and 
sort of engaging, and I think where I probably understand best 
right now is that DOD has DARPA, DARPA has one client, one--and 
one mission and makes clarity easy. And what I hear you saying 
is that with ARPA-E, if it is going to be different, it has to 
understand it is going to have, probably, multiple missions and 
its client basis probably everybody else except the Department 
of Defense.
    What would this group look like if we were to sit down as 
to hammer out a mission statement or statements and to design a 
framework so that we can start looking at how to develop policy 
or what to do within that framework?
    Mr. Fernandez, you said, you know, there are a lot of stove 
pipes and how do you--I don't know if you avoid it, but if--you 
know, how do you create the system that would integrate them 
all so that they--there is some synergy there, and without 
having to wait for shame or fear to drive us, and then--because 
that will--only ends up scapegoating somebody or some country 
or some form of some other thing, which has been the history of 
this country and not waiting for the gathering storm but 
looking for the silver lining that we can move towards or the 
pot of gold at the end of the rainbow.
    Anybody can answer that.
    Dr. Fernandez. I think DARPA ARPA-E would sure be some kind 
of an experiment. I mean, it is not clear it is going to work 
in the Energy Department. You do your best to see what is going 
to happen. I think the most important thing, as was mentioned 
by several of the Members, is you have got to identify some 
initial focus for this entrepreneurial agency to work on. If 
you say work on all of energy, that is such a vast problem, I 
think ARPA-E is dead in the water. DARPA started with space. 
Space was the major--in particular, we were having to do with 
space surveillance.
    Mr. Honda. Okay.
    Dr. Fernandez. Okay. A particular problem to be able to 
look into other people's back yards when they could shoot down 
your airplanes. That was a very, very big deal, and it was very 
hard, and we didn't know how to do it. And the Soviets showed 
they could do it first and everything else. I think, for 
example--as--an example that might be considered would be, say, 
energy for transportation. That is subset, because it requires 
mobile capability, and the things that we do now, the things 
that we use gasoline for and oil for. Okay. And I am not saying 
that should be it, but one area like that that you can say, 
``Now you tell me how we are going to be independent in that 
area for the next 30 years and what is the technology that is 
high-risk, and who are the people we have got to get together 
some place to do it?'' And then if it worked there, I think it 
would morph. As the energy environment changed, it would change 
with the energy environment. That is the essence of DARPA, 
which has been allotted to exist.
    That is the only thing, I guess.
    Mr. Honda. I think you said health.
    Dr. Cotell. Let me make a couple of comments.
    First of all, I would praise the CIA, because the CIA 
actually formed In-Q-Tel two years before 9/11, and so I don't 
think you need a Sputnik. I think everybody here says something 
needs to be changed. Let us just figure out exactly how and how 
to structure it properly. It was that they weren't getting 
access to new information technology that was being developed 
in small start-up companies, because those companies don't 
target the government. It is way too hard to figure out how to 
sell to the government. Government wants to put their fingers 
in your intellectual property, and there are a whole bunch of 
barriers.
    So the CIA looked at that problem and they said, ``How do 
we solve it?'' And they said, ``Well, who do these companies 
work with?'' They work with their venture capitalists. And so 
you provide funding, you are an investor, and you get a bit of 
mindshare into developing those products that ultimately the 
customer needs.
    And sort of in the same way that DARPA changed over time 
from its original focus on space, In-Q-Tel no longer focuses 
exclusively on information technology. We have expanded the 
model, because, as an experiment, we showed that it worked, and 
we have expanded that model to include other technology areas. 
So we work in sensors now. We work in more hardware-oriented 
things in addition to the software-oriented things.
    So again, I go back to my comment that if you are going to 
do this, identify the problem that you are trying to solve, set 
it up in such a way that you believe there is a reasonable 
expectation of success, make sure you have a long-term 
commitment to the experiment, and allow the experiment to morph 
over time and improve as it shows success.
    Mr. Honda. Mr. Chairman, I know my light turned red, but so 
far, what I have been hearing, it still feels like the old--the 
same old paradigm. And someone said think out of the box. Is 
that really thinking out of the box, or is it thinking within 
the box?
    It is a question to all of you.
    Chairman Boehlert. Dr. Mowery, you haven't had your go at 
this one.
    Dr. Mowery. Well, I think that, again, a mission statement 
is very difficult, in many cases, to translate into something 
operational. I think there are a lot of mission statements 
around for the energy area. There have been a number of 
commissions. And I think there is a mission statement implicit 
in the mandate for ARPA-E about reducing dependence by 20 
percent on foreign energy sources, I think. Anyway, the point 
is, I think that it is translating it into something that is 
operational. That becomes extremely difficult and also adapting 
and ensuring a mission statement doesn't become a set of 
manacle that work against the flexibility that is needed in the 
energy R&D area.
    So I think a mission statement, alone, may be necessary, 
but it is far short of what is necessary--or to catalyze energy 
R&D in the way we need to do it.
    Chairman Boehlert. Thank you.
    The gentleman's time has expired.
    Mr. Hall.
    Mr. Hall. Thank you, Mr. Chairman.
    There has been a lot of discussion here about funding and 
importance of funding. For any new and innovative alternative 
energy, you have got to have funding, and when you recommend 
something like that, you have got to pay for it.
    Ms. Kenderdine, in your testimony before the Committee 
today, you mentioned that there should be some separate funding 
mechanism for ARPA-E. And with my thanks to you and your 
associate on advice for the last four or five years as we 
passed the Ultra Deep legislation that is in the energy bill 
that the President is considering right now of zeroing out, and 
I am going to be with him at 2:30 this afternoon to try and 
talk him out of it. But you have some suggestions, don't you, 
about how that funding could be? And keep in mind that Scott 
Tinker, the very brilliant writer from the University of Texas, 
that his paper had indicated that for this program would be not 
costly to the taxpayers, because it is going to reap energy 
sources of its own source until we just can't get up from the 
depths.
    But it is your recollection that his paper indicated that 
for the--for a $10 billion outlay, they get $12 billion back. 
Is that--am I thinking about his testimony?
    Ms. Kenderdine. Their analysis that they did was that it 
would return to the Treasury five times the amount of revenues 
that it cost in additional royalties that were produced from 
additional production on public lands. The--if I may, for a 
minute, the--I have spent a lot of time trying to figure out 
how to get programs paid for. Applied----
    Mr. Hall. Could royalties from the program be used to 
support the ARPA-E trust fund to help develop some sustainable 
energy resources? Could that be used?
    Ms. Kenderdine. The--yes, sir, it could if the Congress 
directed that it be done. The--I--there are time scales that 
were focused on here, and everyone is talking about 30 years 
out. A lot of the panelists have talked about a 
transformational research that will take us to energy 
sustainability in 30 years. There is a significant amount of 
work that needs to be done in the interim. And I would also say 
there is a significant amount of energy in the world. A lot of 
it is in the wrong places. And so in the United States, I think 
it is going to be very difficult to get off of foreign oil. 
Our--there is no way to identify foreign oil in a world 
marketplace. I think we do need to invest in the technologies 
to produce as much domestic oil as we can to cover the interim 
period as we transition. I think we need to have concurrent 
efforts, kind of a near to mid-term time scales, long-term time 
scales. I would hope that an ARPA-E could cover that.
    There is a significant amount of natural gas in the United 
States. It is technically recoverable. We have 60 years of 
technically-recoverable supply, but it is not--we need 
technologies to develop it. We are embarking on a course where 
we are going to be importing our natural gas from the same 
places that we are importing our oil from.
    Having said that, the applied energy research requires 
significant industry input and industry leadership. It is very 
difficult to get the necessary industry input and leadership to 
do applied energy R&D without assured funding. And the trust 
fund that Mr. Hall established provides the industry the 
assured funding that it needs in order to invest its own assets 
in developing new technologies. As Mr. Hall said, it could 
generate a lot of additional revenues, and I am always on the 
lookout for new revenues and ways that we can fund energy R&D 
and with the objectives of ARPA-E which is sustainable, and so 
I think it is a--royalties are a good place to look.
    Mr. Hall. Well, could the royalties from that program be 
used to support an ARPA-E trust fund to help develop these----
    Ms. Kenderdine. Yes, it could.
    Mr. Hall.--sustainable?
    Ms. Kenderdine. Yes, it could, according to----
    Mr. Hall. And without stating exactly how much over a 
period of time it would bring, I recommend people read Scott 
Tinker, I believe is his name, Bureau of Economy Geology at the 
University of Texas. And I think that is the team that played 
Southern California a couple or three weeks ago. I don't 
remember exactly how that came out, but I think that you will 
find that article very well written, and it points out a way to 
get energy for this generation of youngsters to where they 
don't have to fight a war overseas. And that is what energy 
does.
    So you do believe that that could be used for that, and 
there is that five times the federal output? They put up the 
money but they get it paid back by known reserves that are 
there that are in the base of the Gulf that we can find, but we 
can't get them up? And with this view, with the universities 
helping us, Southern Cal, Stanford, and all of the other really 
bright places, it can get that technology.
    Chairman Boehlert. Thank you very much, Mr. Hall.
    And the gentleman's time is expired.
    Mr. Udall.
    Mr. Udall. Thank you, Mr. Chairman.
    It is always a privilege to follow Judge Hall, the wisest 
and most experienced Member of the Congress Judge.
    Thank you all for being here. This is a crucial topic. 
Judge Hall just put his finger on it when he talked about 
sending men and women in American uniforms overseas to protect 
oil supply lines. I don't think any of us want to be in that 
position in the future.
    Dr. Chu, if I could just direct a question to you. I do--
before I do, I want to just make it clear to the Committee and 
all of those assembled that Mr. Gordon has, I think, an 
excellent piece of legislation I am proud to co-sponsor, and 
the concept of an ARPA-E really makes great sense.
    But I would like to understand how it would fit into the 
Department of Energy's current renewable energy research. And 
specifically, Doctor, I think it is probably no surprise I am a 
strong supporter of the National Renewable Energy Laboratory, 
which is based in Colorado. And I am curious to what you would 
think about the role that ARPA-E would play. Would it 
complement NREL, or do you think there is--potentially would be 
at odds with each other?
    Dr. Chu. I think, to be fair, I--we hope that it would 
complement it, but complement always means some necessary--some 
overlap, so there might a competition at the fringes. And let 
me give you a good example. NREL is working very hard to 
produce more efficient solar cells using existing semiconductor 
technology. The type of work that I see ARPA-E is funding is 
something that is very, very different than that: take 
advantage of completely new technology that is just emerging 
today. Many of those technologies that are emerging today are 
actually emerging in the basic science laboratories, new ways 
in making totally new nanomaterials. And so that is why I 
specifically said that that would be an example where it is 
more out of the box. The--they are working--NREL is working on 
enzymes and is actually collaborating with DuPont to work on 
enzymes to help break down cellulose. But the--there is a new 
field, called synthetic biology, which is a continuation of 
recombinant DNA, but instead of one gene, you put in dozens. 
But once you put in dozens of genes, the organism usually just 
breaks down. But--and so the example I cited, given this new 
anti-malarial drug, is an example where one has figured out how 
to put in dozens of genes to produce a drug very inexpensively. 
It is a very total out of the box way of doing things. And that 
scientist, actually, who was working on that was going to go 
and solve another disease, and he is now convinced that he 
wants to use that talent to work on energy.
    So it--that is again something where if the home of ARPA-E 
is closer to the basic research, you can get--it is better to 
get those really new ideas out into the marketplace and into 
innovation and into industry faster.
    I just want to make one comment regarding the other 
question.
    I was just thinking. Dr. Fernandez made an excellent 
suggestion about having the focus, like on transportation. And 
I think the American public might go for a few pennies. I am 
not sure how many billions of gallons of gasoline we use a 
year, but it--we are talking now, it could be less than a 
penny, it could be a few pennies that goes directly into 
looking at improving transportation and an alternative to oil. 
That part of it, and you know, the American public might buy 
that. I don't know.
    Mr. Udall. Doctor, thank you.
    If I could now direct a question to the panel.
    The Energy Policy Act authorized the Energy Efficiency and 
Renewable Energy funding levels at a much higher level than we 
have actually appropriated to those levels, and I know you 
can't speak for the DOE, but do you believe that there would be 
efficient--or sufficient resources, I should say, to continue 
EERE funding levels and support ARPA-E at the same time? And 
then to follow on, what do you think the appropriate levels for 
ARPA-E, when it comes to funding, would be?
    Maybe we will start over here with Dr. Cotell.
    Dr. Cotell. I have to say, I am completely unqualified to 
address that question at all. I am sorry to say, but it is just 
not my field, and I wouldn't want to express an opinion.
    Mr. Udall. Well, if you would like to weigh in later, for 
the record, you feel free to do so.
    Dr. Cotell. Thank you.
    Mr. Udall. Dr. Fernandez, do you have any thoughts on this 
question?
    Dr. Fernandez. The only thoughts I have are my experience 
at DARPA.
    A program--a DARPA program, to be meaningful, has an 
impact, runs between $10 to $30 million a year, so that if 
DARPA was going to have a half a dozen programs or ten 
programs, that would kind of set the yearly budget that you 
would have to have for DARPA. A lot of agencies, what they do, 
is they wallpaper every particular area by under funding, but 
they have got view graph level capabilities, so they are in 
everything but nothing is critically funded. And I think in any 
one of these areas where you are limited and you are trying to 
do these things, somewhere--like that number. And then if you 
picked the number of projects, that would tell you kind of what 
the number happens that you need. And I think you need a half a 
dozen or ten projects, because you don't want to bet the farm 
on a single project, high-risk kind of a thing.
    So I think that is the kind of--where you make up an 
initial budget.
    Mr. Udall. Mr. Chairman, do you think we can get a short 
answer from the other two panelists?
    Ms. Kenderdine. Mr. Udall, the--I think you might have come 
in after I said that I think that energy R&D is dramatically 
under funded, I think, in a lot of areas. And that is--it has 
always been distressing to me. You might have been in Keystone 
when I had a concern--expressed concern over the outrage over 
the high price tag for the energy bill, which is $3 billion a 
year for 10 years, which , you know, depending--regardless of 
how you spend it, that is not very much money to be spending on 
our energy and national security future. So I would advocate 
funding at all authorized levels. I also think that a billion 
dollars a year, as recommended by the Academy, in new money so 
that it doesn't impinge on the funding for existing programs 
is--I would defer to their expertise in that--in what--how they 
came up with that funding amount.
    Mr. Udall. Doctor, any final thoughts?
    Dr. Mowery. I am not very expert. I will simply suggest 
that I agree that clearly alternative energy R&D has been under 
funded. I think, however, that an ARPA-E may not be the best 
vehicle for expanding funding of that, particularly by 
comparison with what I will suggest maybe an equally 
unrealistic alternative of more intervention on the demand 
side, you know, creating incentives for adoption.
    Chairman Boehlert. Thank you very much.
    The gentleman's time has expired.
    Mr. Gutknecht.
    Mr. Gutknecht. Well, thank you, Mr. Chairman.
    I do think this is a very important hearing, and I want to 
thank all of you for coming here today. I must confess, first 
of all, my own prejudice. I have been a big supporter of DARPA, 
and I have seen some amazing things, and I happen to believe 
that success leaves clues. And frankly, when you look at how 
much we spend every month, I think the last number that I have 
in the month of August, we spent just south of $24 billion to 
buy oil from countries that don't particularly like us. So if 
you divide that up, we are approaching a billion dollars a day 
to buy oil from countries, as I said, that don't particularly 
like us. And I think the United States is ready to move 
forward.
    I like the ARPA-E model, and I like it for a whole lot of 
reasons. And I am a big supporter of NREL. I have been out 
there, and I appreciate the work that they do. And frankly, I--
one of the things we had a discussion about earlier today with 
one of the Administration officials, it is--one of the things 
that we have allowed to happen, unfortunately, on our watch is 
too much earmarking of monies that are intended to go to labs, 
like NREL, that are diverted to projects in people's district, 
and which is why I think that the DARPA model makes sense. And 
I think we have to protect research dollars at every level. I 
think we ought to let scientists, more or less, make those 
kinds of decisions.
    But you know, I know there are a lot of questions, well, 
can we do this, can we do that, and--but I like to quote one of 
my favorite scientists who works for a little company in 
Minnesota called 3M. Now he probably wasn't the first one to 
say it, but he is the first one I have heard it from. He said, 
``If we knew what we were doing, it wouldn't be research.'' And 
I think there is a certain element of that in all of this. And 
which is also why I like the ARPA-E model, and that is that 
there is an element of serendipity to research. Sometimes you 
start out looking for one thing and you stumble on to 
something, and you say, ``Oh, my gosh. This could be very 
helpful.''
    But the other reason I want to make the case for ARPA-E is 
on one occasion, I actually took some business people--I sort 
of hosted my own trade mission out to NREL to take a look and 
discuss with some of the scientists out there what they are up 
to and compare notes with what some of the folks in the private 
sector are up to. On the way home, I remember talking to one of 
the businessmen, who was working on some, what I think, pretty 
interesting technologies in the State of Minnesota. And he 
seems to be making progress a lot faster.
    For--let me give you an example. One of the things I have 
been interested that NREL is doing is the ability to take 
energy, when you have excess energy coming from these wind 
turbines, and we have a lot of wind turbines in southern 
Minnesota in my district. And amazingly, they are twice as 
efficient as the ones we were building five years ago. It has 
been an amazing thing to watch. But the problem is we don't 
have the transmission capacity. When the wind is blowing at 25 
miles an hour, we can't--you literally have to shut them down, 
because we can't transmit the power. And the idea of using 
hydrogen as batteries, and they have had this and they have 
been working on this out in Colorado for a long time, what 
would look like--we call them harvest stores back in my part of 
the world where you actually store the excess electricity in 
the form of hydrogen when the wind is blowing hard, and then 
you reconvert it. And the only byproduct you get is completely 
pure water, which, out in southwest Minnesota, is a fairly 
valuable commodity as well.
    But they have been working on this technology now for five 
years, and it is still not in the marketplace. And I asked one 
of the entrepreneurs. I said, ``Why is it that you guys in the 
private labs seem to make progress faster than sometimes we see 
in the government labs?'' And he smiled and he said, ``Because 
we only eat what we kill.''
    And so the ARPA-E model really intrigues me, because in 
some respects, you are working with private entrepreneurs, and 
on, sometimes, very cutting-edge technologies. And as I say, 
when you look at the track record of DARPA, I mean, I think it 
is a track record we all ought to be proud of. Now have there 
been failures? Well, absolutely. I think any time you are 
funding any kind of research that is cutting-edge, you are 
going to have some of these things that just aren't going to 
work out. And I think we have to be big enough on this 
committee and in Congress to admit that.
    But I do hope you will all give this concept and idea--or 
this idea an opportunity to be flushed out, because I think, 
long-term, when we are spending the kind of money that we are 
spending right now on energy, to import it from countries that 
don't like us, I do think America is ready for us to do some 
things. And the first of which is not earmark the money that we 
do spend on research, to let the scientists make those 
decisions, but more importantly, create a way that we can--and 
the model that I like is that DARPA calls themselves--one of 
the DARPA people told me, like a big venture capital company 
that literally helps some of these small guys with great ideas 
to find out whether they really work or not. And if only a 
handful of them work out, I think I agree with the Judge from 
Texas. I think the return to the taxpayers could be really 
astronomical.
    And I--if you want to respond to that, you are more than 
welcome to, but I--this is an issue I think, as Victor Hugo 
said, ``This is an idea whose time has come.''
    Chairman Boehlert. I thank you.
    Here--I will have one last question, and then I will 
recognize Mr. Gordon, and then I would ask all of our witnesses 
to expect--we will have a couple of more questions we will 
submit to you in writing, and we would appreciate a timely 
response, knowing the many demands on your time.
    But the advisory panel, ``Rising Above the Gathering 
Storm,'' concluded that the biggest problem was basic research 
rather than later they support. And I am wondering, Dr. Chu, 
how the panel arrived at that analysis. And then I would ask 
all of the panelists if you would tell us where in the research 
sector do you see the biggest barriers to do--developing new 
energy technologies?
    So let us start with you, Dr. Chu.
    Dr. Chu. Well, we talked before about what I would consider 
applied research going to the next stage. Nuclear is a good 
example of that. The key is research, but it--a path is 
charted. And so we are really looking to ARPA-E to bring the 
fruits of the newest areas in science, like nanotechnology and 
synthetic biology, which haven't even been around long enough 
so that most venture capitalists know about it. So it really is 
in the spirit of a large venture capital firm making small 
investments.
    Chairman Boehlert. Could I go right down the panel?
    Dr. Mowery, would you have some comments?
    Dr. Mowery. Well, I think the big picture premise for the 
``Gathering Storm'' document on the balance of the U.S. 
research portfolio is a reaction to the dramatic increases in 
biomedical R&D over the past 20 years relative to physical 
sciences R&D, and I think there is a--that is one of two issues 
that they respond to in suggesting energy, in particular, as a 
focus for increased basic research.
    Again, I think if one is--the issue here, in some respects, 
is whether the priority is--if the priority is the health of 
the R&D system, which is an important issue, then I think basic 
research, particularly in physical sciences and engineering, 
and probably with a heavy tilt toward universities, is a very 
important priority.
    If the priority is affecting energy consumption patterns, 
along the lines that we have discussed here this morning, then 
I think the demand side, again, really has to play an important 
role, because the near-term payoffs, and I am talking five 
years to that--to an intervention there are likely to be much 
greater than those associated with expanded fundamental 
research. In the nature of the fundamental research investment, 
it takes a long time to pay off, as Dr. Chu has suggested.
    Ms. Kenderdine. Mr. Chairman, I think there are kind of 
three areas where the barriers are substantial. The very near-
term, where you have, as you mentioned technologies on the 
shelf that are sitting there and pushing them into the 
marketplace is very difficult. And that goes to your point. You 
really need market conditioning based on policy as much as you 
need research. You do need some very near-term research and 
pushes. We have an aversion to picking winners at that stage in 
the process, and so there is a lot of disincentives to doing 
that.
    On the--in the long-term, I understand the support for 
basic research. I don't read ARPA-E as a pure basic research 
program, because basic research doesn't care about pushing 
products or developing specific technologies. That is not what 
basic research is about. It is unfettered. And if you look at 
the DARPA budget, the breakdown of their budget, the largest 
amount is for applied; it is not for basic. So they contemplate 
applied research functions in DARPA as well.
    But I think that there is an enormous disconnect between 
the language that the basic researchers speak, between the 
language the applied researchers speak, and between the 
marketplace, and that is kind of the function I see for ARPA-E. 
And I think that that would help break down that barrier.
    And I can't remember what my third one was.
    Chairman Boehlert. Okay.
    Dr. Fernandez, you were talking about DARPA, and that is 
referenced a lot. It is In-Q-Tel that is more like the venture 
capital operation. It isn't DARPA. Would you care to comment on 
that? I mean, you are----
    Dr. Fernandez. DARPA is not a venture capital firm.
    Chairman Boehlert. No, no, I understand that.
    Dr. Fernandez. DARPA is more like an angel funding place, 
okay. Venture capitalists will not fund things where there is 
not a pretty good market already established. Okay. And DARPA 
funds things where the idea is that if you are lucky, what you 
end up creating will make a market. That is what DARPA is all 
about.
    Most importantly, and I think this is one--I am not sure it 
is the purview of this committee, one of the things DARPA 
forces in its process is interaction between engineers and 
scientists, constant, and force that through building a device, 
building something as the output of the project. Scientists, a 
lot of times, are bent on discovering new phenomena and on 
understanding phenomena. It turns out that understanding is 
very, very hard to get across to a non-scientific person. 
Engineers build things. And we force everybody who works for 
DARPA to build something at the end to show what difference 
could it make. Now whether it gets adapted or not by DARPA is 
another story, all right. But that is a tradition at DARPA that 
came back from the Manhattan Project. The same people, these 
same ideas that scientists will build things. And that is how 
we communicate with the commercial sector. And----
    Chairman Boehlert. Dr. Cotell, any commentary?
    Dr. Cotell. Yeah, and some of my commentary I think is 
going to go back to my history as a research scientist and not 
a venture capitalist, and that is the observation that in the 
last few years, we have really reduced the budgets for basic 
research. And by basic research, I mean those things that are 
looking at implementation five years or more out. And that is 
where I think you really want to make sure that the pipeline 
doesn't dry up. That is important. And what appeals to me about 
this concept of ARPA-E is that you would ensure funding for 
that kind of thing. And then, because it has been described as 
a nimble organization that is lean, there will be some 
selection as to which of those ideas you want to cultivate and 
pull in.
    And I guess what I would say is, from the venture capital 
perspective, it would be very useful to inform that decision of 
which ones you want to pursue and continue with some market 
forces and market analysis, the kind of diligence that a 
venture capital firm would do in making that selection.
    And so--and that is where I would really have that comment.
    Now the one thing I would kind of disagree, perhaps, with 
Dr. Fernandez about is that sometimes it is not the same team 
that should be doing that entire spectrum of work. Sometimes 
you should have the basic research done by the brilliant 
scientists and transition it over time to more engineering-
oriented people, either by collaboration or, you know, moving 
it out into a company. And I think that is another thing that I 
would like to see incorporated in this kind of organization is 
the ability to manage that, pull the right teams together to 
pursue things over time.
    Chairman Boehlert. Thank you very much.
    Mr. Gordon.
    Mr. Gordon. Thank you, Mr. Chairman, once again, for having 
this committee. I will be brief.
    Thanks to the witnesses for coming today. I am sorry Mr. 
Gutknecht could not be here. I want to--I would like to concur 
with his very, I think, persuasive argument for ARPA-E.
    You know, at some point, the American public is going to 
require the political leadership to step forward on this issue 
of--I think, a security issue of reducing our dependency on 
foreign energy sources.
    Now unfortunately, when that kind of occurs, you don't just 
switch the switch. You have to have the basic research, the 
other type of research beforehand. I think that is why I--you 
know, ARPA-E gets that started. I know that the Majority, in 
trying to put this committee together, looked long and hard to 
try to find somebody who was against this proposal. The best 
they could do was find somebody that said, ``Well, maybe we 
ought to do something.'' You know, ``Maybe we should do more 
conservation.'' Well, certainly, we should do more 
conservation. Certainly, we should do more production. And this 
is a part of it, too. We need more of everything. And we are 
not going to be able to click that switch later unless we do 
this kind of work now.
    I think it is time to--you know, to stop talking about all 
of the subtleties and get on with action.
    So again, thank you all for being here.
    Chairman Boehlert. And thank you.
    I really appreciate it.
    The hearing is adjourned.
    [Whereupon, at 12:35 p.m., the Committee was adjourned.]
                               Appendix:

                              ----------                              


                   Answers to Post-Hearing Questions




                   Answers to Post-Hearing Questions
Responses by Steven Chu, Director, Lawrence Berkeley National 
        Laboratory

    These responses are based my experiences as a member of the 
National Academy of Sciences, National Academy of Engineering, and 
Institute of Medicine's Committee on Prospering in the Global Economy 
of the 21st Century, chaired by Norman Augustine, that produced the 
report Rising Above the Gathering Storm: Energizing and Employing 
America for a Brighter Economic Future. My responses to the questions 
below are as a representative of the Augustine Committee and not as a 
staff member of the Department of Energy.

Questions submitted by Chairman Sherwood L. Boehlert

Q1.  How did the National Academy panel arrive at the recommended 
funding figures for ARPA-E? Is there an initial level of funding below 
which it would not be worth creating the agency? If so, what is that 
level and how did you determine it?

A1. Although the ultimate decision for funding ARPA-E would be the 
prerogative of Congress and the Administration, the Committee felt 
strongly that initial funding of at least $300 million was necessary to 
launch a significant program with real objectives. This should 
gradually increase over five years to $1 billion, at which point the 
program's effectiveness would be evaluated.
    The budget amount is based on the Committee's review of the initial 
funding of other new federal research programs such as ARPA, ATP, In-Q-
Tel, etc., and the degree to which they deemed it to be sufficient or 
not.
    The report's budget estimate is a floor rather than a ceiling. To 
do less would be to risk funding only marginal advances and jeopardize 
the transformational goals of the program. Program managers need the 
flexibility that adequate resources provide to fund the most exciting 
scientific opportunities.

Q2.  What role should universities, National laboratories, large 
companies and smaller companies play in carrying out ARPA-E projects? 
Should any of those categories of institutions be either required or 
forbidden to participate? How should participation be structured to 
simultaneously ensure that transformational research will be performed 
and that its results will be commercialized?

A2. The roles played by the organizations you list would depend on the 
particular scientific and technology needs of the particular project. 
There should be no barrier, nor any predetermined requirement for 
participation. The funding decisions should be made upon clear 
adherence to the principles outlined in the report. As I indicated in 
my testimony, ARPA-E should:

        1.  Bring a freshness, excitement, and sense of mission to 
        energy research that will attract many of our best and 
        brightest minds--those of experienced scientists and engineers, 
        and, especially, those of students and young researchers, 
        including those in the entrepreneurial world.

        2.  Focus on creative ``out-of-the-box'' transformational 
        energy research that industry by itself cannot or will not 
        support due to its high risk but where success would provide 
        dramatic benefits for the Nation.

        3.  Utilize an ARPA-like organization that is flat, nimble, and 
        sparse, capable of sustaining for long periods of time those 
        projects whose promise remains real, while phasing out programs 
        that do not prove to be as promising as anticipated.

        4.  Create a new tool to bridge the gap between basic energy 
        research, and development/industrial innovation.

    The agency would itself perform no research, but would fund work 
conducted by universities, start-ups, established firms and national 
laboratories. Although the agency would be focused on energy issues, it 
is expected that its work (like that of DARPA or NIH) will have 
important spin-off benefits, including aiding in the education of the 
next generation of researchers.
    Part of an ARPA-E program manager's responsibility will be the 
creation of appropriate and authorized consortia of laboratories, 
universities, and/or industry to ensure the dissemination and 
commercialization of new technologies. ARPA-E would begin to build a 
pathway for commercialization as soon as the technological objectives 
are within reach. How this is done should be left up to the Department 
of Energy to decide.

Q3.  Why do you believe that the biggest gap in energy research is in 
the area of transformational, basic research? To what extent are there 
barriers later in the research process--during the prototype stage, or 
``the valley of death,'' or even finding funding later in the process? 
And to what extent did the National Academy panel consider recommending 
tools to stimulate demand for new technologies rather than just 
stimulating research on new ideas that may never find a market?

A3. The gap between basic science and technological advancement is 
often large and impossible to measure. However, research and 
development history has shown that significant leaps in technological 
development have occurred from the application of basic science to 
fundamental technological barriers when done in a focused and well-
managed way. The Manhattan Project and the Apollo Projects are well-
known U.S. examples.
    An example I use often is of the development of the transistor at 
Bell Laboratories. Basic scientific problems had to be addressed using 
very basic science; however, Bell Labs had a very real and articulated 
objective. As science answered the questions and solved the problems, 
engineers and product developers saw the opportunities more clearly and 
began their work to capture the technology commercially. ARPA-E would 
mimic this process. There is no other analogous office within DOE that 
has responsibility for the cradle to grave aspect of shepherding 
transformational science to transformational technology.
    The question of what is likely to have more impact, technological 
advances or policy pulls is an interesting one that is worthy of study. 
And, even within policy, there are many mechanisms which can be used 
whose effectiveness could be evaluated. The Committee focused on where 
it saw the largest gap and focused on technological advancements and 
included market considerations in the design of ARPA-E. The National 
Academies Committee on Science, Engineering, and Public Policy 
(COSEPUP), under whose aegis the Rising Above the Gathering Storm 
report was developed, is considering undertaking a study that would 
focus on the issue of the effectiveness of energy policy mechanisms.

Q4.  What would be the pros and cons of Congress, in law, enumerating 
some of the general areas of research that an ARPA-E should focus on 
(i.e., an initial set of problems to solve, not a list of specific 
technologies)? Might this help prevent ARPA-E from gradually looking 
like every other Department of Energy (DOE) program?

A4. The Committee did not specifically address this issue, but I am 
happy to share my personal thoughts. The key to ARPA-E's success will 
be the quality of the program managers and the flexibility and freedom 
they are given to fund the science with the most exciting potential. 
Limiting the type of science or solution by listing them in legislation 
could prohibit funding on areas not even imagined now; however, 
focusing on a list of societal problems to be addressed may hold merit 
in terms of providing guidance to the program managers.

Q5.  Why couldn't the National Academy's goals for ARPA-E be 
accomplished by reforming existing DOE programs by, for example, 
requiring the Office of Science (or even the National Science 
Foundation) to focus more of its research grants on energy problems? Or 
why couldn't DOE's applied programs focus on longer-range research?

A5. The Committee saw a gap between DOE's basic research and applied 
programs. It believes that each of these already has a full plate and 
adding more duties would not lead to the desired results for 
transformational research.
    As I testified at the ARPA-E hearing, the establishment of an ARPA-
E, or any program that intends the same results, should under no 
circumstances take monies away from the Department's basic science 
programs. If the Office of Science were more focused on particular 
energy problems, then its basic research program that might develop 
whole new ways of addressing energy questions might be damaged.
    And, given the very specific way that the DOE applied energy 
programs is organized, it would be difficult to bring new 
transformational ideas that did not fit within one of the existing 
organizational boxes.
    ARPA-E is needed to provide out-of-the-box transformational energy 
solutions that are challenging to achieve in DOE's current structure.

Q6.  Can you give us a few examples of research that ARPA-E might 
pursue? Is any work being done in these areas now, and who is it funded 
by? Why couldn't any current funding agency carry out the ARPA-E agenda 
in that particular area?

A6. COSEPUP is considering undertaking a workshop that would address 
this issue, but, as was mentioned previously, any identification of a 
specific set of technologies is likely to limit the ability of ARPA-E 
to reach its goals. In my testimony, I provided the following examples 
of what ARPA-E might fund include:

        1.  The development of a new class of solar cells.

            Photovoltaic solar cells using semiconductor technology can 
        be very efficient at converting sunlight into electrical 
        energy, but the fabrication cost remains too high. Organic and 
        polymer solar cells can be made at low cost, but the 
        efficiencies are low and existing materials degrade in 
        sunlight. One promising avenue towards inexpensive, efficient 
        and long lasting solar cells is to create novel materials based 
        on multiple elements that can be manufactured with thin-film 
        technologies. Another approach is to create nano-particle 
        devices (distributed junction solar cells) that use different 
        nanostructures for the conversion of sunlight into charge 
        carriers and for the collection of those charges onto 
        electrodes.

        2.  Biomass substitutes for oil.

            The ethanol for transportation is currently produced from 
        sugar cane, corn or other plants. However, the most cost 
        effective bio-fuels will come from the conversion of cellulose 
        into chemical fuel. When the fuel is burned, CO2 is 
        released into the atmosphere, but the overall cycle can, in 
        principle, be carbon neutral. The creation of crops raised for 
        energy will also take full advantage of our great agricultural 
        capacity.

    ARPA-E can fund the creation of new plants to be grown for energy 
by incorporating a number of genes introduced into plants. Recently, a 
team of scientists at Lawrence Berkeley National laboratory inserted 
many genes into bacteria to produce an extremely effective anti-
malarial drug. The Gates Foundation has given this team a $42M grant to 
commercialize the technology so that the drug can be made available to 
the developing world. Similar technology can be used to make plants 
self-fertilizing, drought and pest resistant. Note that about 25 
percent of the energy input in growing corn comes from fertilizer, 
which is made from ammonia derived from natural gas.
    Research on more efficient conversion of cellulose into liquid fuel 
would also yield great dividends. Current methods use the high 
temperature/high acid processes that are very energy intensive. The 
breakdown of cellulose into ethanol is also accomplished with bacteria 
or fungi, but this process can be made much more efficient if the 
micro-organisms are modified with these methods.

Q7.  To what extent could prizes be used to stimulate longer-range 
energy work and particularly work on integrating different scientific 
advances or technologies across fields? Could prizes ever be a 
substitute for an ARPA-E?

A7. The Committee recommended that the White House establish a 
Presidential Innovation Award and certainly one of these could be 
directed toward energy. It is unlikely, however, that such a prize 
would have the impact ARPA-E would have given it is providing the 
funding for research while the prize mechanisms only provides funding 
once the goal is achieved. Most researchers are unlikely to have the 
ability to fund research themselves. It is certainly possible, however, 
that a company could use the results of ARPA-E funded research to 
develop technological solutions.

Questions submitted by Representative Bart Gordon

Q1.  What do you consider to be the most pressing challenge we face in 
energy? Will the cumulative efforts of our current federal civilian, 
university and industrial R&D infrastructure give us a solution(s) to 
that challenge?

A1. The Committee did not address this issue, but the National 
Commission on Energy Policy in its December 2004 report Ending the 
Energy Stalemate: A Bipartisan Strategy to Meet America's Energy 
Challenges provides a good starting point. The commission recommended 
doubling the Nation's annual direct federal expenditures on ``energy 
research, development, and demonstration'' (ERD&D) to identify better 
technologies for energy supply and efficient end use. Improved 
technologies, the commission indicates, will make it easier to:

          Limit oil demand and reduce the fraction of it met 
        from imports without incurring excessive economic or 
        environmental costs.

          Improve urban air quality while meeting growing 
        demand for automobiles.

          Use abundant U.S. and world coal resources without 
        intolerable impacts on regional air quality and acid rain.

          Expand the use of nuclear energy while reducing 
        related risks of accidents, sabotage, and proliferation.

          Sustain and expand economic prosperity where it 
        already exists--and achieve it elsewhere--without intolerable 
        climatic disruption from greenhouse-gas emissions.

    I do believe that our current research infrastructure has the 
intellectual capital to address these challenges; it just needs the 
funded to do so.

Q2.  If you were the Director of ARPA-E what three potentially 
transformational technologies would you be likely to pursue?

A2. Please see response to Chairman Boehlert's question number 6.

Q3.  To your knowledge, is the current organizational structure of the 
Department of Energy and its various programs conducive to generating 
truly transformational energy technologies? Where is it lacking?

A3. Please see response to Chairman Boehlert's question number 5.

Q4.  Do you believe that a DARPA-like program for energy can attract 
industrial interest sufficient to bring about real change in the energy 
technology sector? What are the barriers for industrial participation?

A4. I do believe that there will be sufficient industrial 
participation--perhaps from companies that are not the traditional ones 
focused on energy research. This will help lead to transformational 
solutions as new intellectual capital becomes part of the energy 
research enterprise.
    The key barrier for industrial participation are likely to be 
issues related to intellectual property, but these can be addressed as 
they have for DARPA which has produced many commercial and government 
spinoffs.

Q5.  To the extent that you are familiar with the energy research 
conducted in the Department of Defense, do you see potential linkages 
between any current research activities at DARPA and the research that 
would be conducted through ARPA-E?

A5. I lack sufficient knowledge regarding DARPA to answer this 
question.

Questions submitted by Representative Eddie Bernice Johnson

Q1.  How do you feel about Mr. Gordon's legislation, H.R. 4435, 
establishing an ARPA-E?

A1. The National Academies does not endorse legislation.

Q2.  What is your opinion about how an ARPA-E would be organized? Would 
the director report to the head of DOE's Office of Science or directly 
to the Secretary of Energy?

A2. ARPA-E would report to the DOE's Under Secretary for Science.
                   Answers to Post-Hearing Questions
Responses by David C. Mowery, William A. & Betty H. Hasler Professor of 
        New Enterprise Development, Haas School of Business, University 
        of California at Berkeley

Questions submitted by Chairman Sherwood L. Boehlert

Q1.  You suggest in your testimony focusing existing basic research 
programs on energy programs and perhaps funding university centers 
devoted to energy questions. What could be done to increase the chances 
that ideas coming out of such centers were commercialized? How should 
one involve industry in a way that would not make the research less 
risky?

A1. I believe that expanded funding for university-based research on 
energy-related issues will enhance the progress of fundamental 
knowledge on a number of current and future solutions to energy-related 
challenges. In addition, of course, university-based research 
contributes to the training of future generations of the scientists and 
engineers who will address these challenges in energy and related 
areas. Such research might also address issues of policy design (e.g., 
emissions-trading schemes) to encourage greater conservation of energy 
from existing sources, as well as the development of new policies to 
encourage more rapid and effective implementation of technological 
solutions to these energy challenges.
    Commercialization of the results of such research, in my view, is 
less a question of designing new ``technology transfer'' mechanisms 
than one of developing a set of market-based incentives for industry to 
invest in the debugging and market introduction of technologies based 
on advances in fundamental knowledge. Indeed, many potential 
technological solutions that could reduce climate-affecting emissions 
or enhance energy efficiency exist in prototype form, but do not face 
commercially attractive markets because of current policies that have 
stunted the development of such markets. Congress and the Executive 
Branch have created a diverse array of mechanisms to support 
university-industry technology transfer since the 1980s, and I believe 
that effective management of existing tools, rather than the creation 
of additional tools, is the best way to maintain the effectiveness of 
technology transfer activities.
    The appropriate balance of risk in any such research programs is an 
important issue. Most university faculty, especially in fields such as 
engineering, pursue a mix of fundamental and applied research, but are 
professionally rewarded for work that is perceived by peers to be a 
significant contribution to knowledge. As a result, faculty have strong 
incentives to pursue high-impact research that may not be supported by 
industrial firms from their internal resources. Given these strong 
professional incentives, history suggests that a mix of funding sources 
(industry and public) can contribute to high-risk research with 
potentially significant impacts on knowledge and practice, while also 
enabling industrial firms to acquire sufficient familiarity with 
technological options to support their commercialization within 
industry.

Q2.  Where do you believe the biggest barriers are in the energy 
research ``pipeline''? To what extent are there barriers later in the 
research process--during the prototype stage, or ``the valley of 
death,'' or even finding funding later in the process? Are the barriers 
you see better removed by tools that would stimulate the supply of new 
technologies or demand for new technologies or some combination?

A2. Although the energy R&D ``pipeline'' includes a number of phases 
that require the investment of substantial sums in high-risk projects, 
I believe that the lack of incentives for commercialization and 
adoption are the most significant barriers to commercialization of 
technological innovations that can contribute in the near-term to 
solutions to energy-related challenges. The United States has a 
financial system that is extremely innovative in developing solutions 
to risky investment prospects. The biggest problem in the energy field, 
in my view, is not the fact that the risks of technology development 
and commercialization are too high.
    The most important barrier to the commercialization of more 
efficient, lower-emission technologies is the perception that the 
market for such technologies is too small and/or uncertain to support 
the large investments that would be necessary to promote their 
commercialization. In other words, the most important barriers are 
those at the very end of the ``pipeline,'' in the marketplace.

Q3.  What would be the pros and cons of Congress, in law, enumerating 
some of the general areas of research that an ARPA-E should focus on 
(i.e., an initial set of problems to solve, not a list of specific 
technologies)? Might this help prevent ARPA-E from gradually looking 
like every other Department of Energy (DOE) program?

A3. I believe that Congress should oversee the strategy, operations, 
performance, and finances of an ARPA-E, but avoid involvement in 
defining the agency's research agenda. Congress is not well-positioned 
to provide detailed guidance on the specific technological areas that 
an ARPA-E should pursue, and Congress historically has not micro-
managed the R&D agenda for DARPA. A strong advisory board of 
independent experts drawn from federal laboratories, industry, and 
academia should provide guidance and oversight of the ARPA-E R&D 
agenda. Keeping in mind that DARPA benefited from strong links with its 
``customers,'' the armed services, one of the most important roles of 
such an advisory board is representing the views and needs of the major 
``customers'' for ARPA-E R&D in both the industrial and user 
communities.
                   Answers to Post-Hearing Questions
Responses by Melanie Kenderdine, Vice President, Washington Operations, 
        Gas Technology Institute

Questions submitted by Chairman Sherwood L. Boehlert

Q1.  What role should universities, National laboratories, large 
companies and smaller companies play in carrying out ARPA-E projects? 
Should any of those categories of institutions be either required or 
forbidden to participate? How should participation be structured to 
simultaneously ensure that transformational research will be performed 
and that its results will be commercialized?

A1. It is my understanding that DARPA program managers are given a 
great deal of discretion over project funding; presumably this is one 
aspect of the DARPA program that would be replicated in an ARPA-E. 
ARPA-E project managers are empowered to select projects and make 
investments on merit, regardless of which institutions submit 
proposals. Because the customers for ARPA-E projects are, by and large, 
energy end users in the private sector, however, care should be given 
for proper vetting of activities with requisite technical advisory 
committees and peer review organizations, with the understanding that 
peer review for applied research necessarily entails different players 
than for basic research.

Q2.  Why do you believe that the biggest gap in energy research is in 
the area of transformational, basic research? To what extent are there 
barriers later in the research process--during the prototype stage, or 
``the valley of death,'' or even finding funding later in the process? 
And to what extent did the National Academy panel consider recommending 
tools to stimulate demand for new technologies rather than just 
stimulating research on new ideas that may never find a market?

A2. I cannot speak to the National Academy's considerations. I do not 
necessarily agree that the biggest gap in energy research is in 
``transformational, basic research'' and I do not believe that research 
must be basic to be ``transformational.'' As I noted in my written 
testimony, there was confusion in the report relative to the NAS 
program description,

         ``These descriptions beg several questions. Is ARPA-E 
        primarily a basic research program, an applied research 
        program, a program to ``turn cutting edge science and 
        engineering into technology,'' an effort to accelerate 
        commercialization, or all of the above? Each of these suggests 
        different leadership, organizational structures, personnel 
        capabilities, and reporting chains, as does a single program 
        that contemplates performing all these functions (an 
        approximation of DARPA). A clarification of program objectives 
        will drive the research management model and is fundamental to 
        program success. Further, there needs to be a clear delineation 
        between DOE's existing basic and/or applied research programs 
        and ARPA-E's mission, research targets, reporting chain, etc.''

    Further, I agree that there are significant barriers at later 
stages of research, and noted in my written testimony (assuming program 
objectives are clarified), ``that at DOE an ARPA-E that is focused 
primarily on applied R&D (or includes a substantial applied R&D 
component) would typically require industry cost share (which is not 
the case at DARPA). Federal procurement, intellectual property, 
contract management provisions, DOE orders and other federal 
requirements are off-putting to many industry players, placing de facto 
barriers to industry participation and cost share commitments--
essential elements to successful applied energy R&D, including 
demonstration, deployment and technology transfer.
    Federal energy R&D is performed under the constraints of annual 
appropriations which are inconsistent from year-to-year, 
administration-to-administration and secretary-to-secretary. Also, 
program funds are largely ``mortgaged'' from the start, and 
increasingly line-itemed. The risks and limitations of the funding 
process further discourage industry participation and its commitment of 
matching funds, making it more difficult to optimize the migration of 
technologies into the marketplace.''

Q3.  What would be the pros and cons of Congress, in law, enumerating 
some of the general areas of research that an ARPA-E should focus on 
(i.e., an initial set of problems to solve, not a list of specific 
technologies)? Might this help prevent ARPA-E from gradually looking 
like every other Department of Energy (DOE) program?

A3. Congress could enumerate areas ``including. . ..'' which might 
provide general policy direction without prescribing or limiting areas 
of research. General focus areas for ARPA-E could include:

          development of economically sustainable energy 
        sources, which implies a reduction in oil consumption and U.S. 
        reliance on imported energy from unstable regions of the world, 
        and the development of domestic, hemispheric and alternative 
        energy sources

          environmental mitigation, particularly greenhouse gas 
        capture and sequestration,

          energy infrastructure development to produce, refine 
        and distribute new sources of energy

          energy efficiency, with a focus on end use 
        efficiencies.

    These focus areas track those of other programs in the Department. 
In my view, an ARPA-E would provide the greatest value to DOE in its 
structural differences from other DOE energy programs, not necessarily 
in its focus areas (see Question 4).

Q4.  Why couldn't the National Academy's goals for ARPA-E be 
accomplished by reforming existing DOE programs by, for example, 
requiring the Office of Science (or even the National Science 
Foundation) to focus more of its research grants on energy problems? Or 
why couldn't DOE's applied programs focus on longer-range research?

A4. I would first note that when DARPA was formed, it was not intended 
to supplant the research programs of the services and it does not 
function in this way. Rather it is designed to add additional 
capability to DOD that enables the--

          ``Development of integrated concepts beyond the 
        purview of a single service

          Taking on large-scale proof of concept demos with a 
        scientific process and a willingness to fail

          Working with the OSD leadership to broker the 
        commitment of the services.''

    An ARPA-E could provide similar capability at DOE. There are some 
gaps inherent in the structure of DOE programs:

          ``DOE's applied research programs are organized 
        around fuel sources, e.g., coal, oil, gas, nuclear, renewables 
        (the efficiency program is an exception). The existing 
        organizational structure and focus provides a solid foundation 
        for the Department's applied research and the support of strong 
        constituencies; it runs the risk however of isolating oil 
        supply from transportation or fossil fuels from efficiency, for 
        example, and promotes a tendency to focus on incremental or 
        discrete technologies (exceptions are generally within 
        programs, not across programs) as opposed to systems that 
        integrate research needs from supply to distribution to end 
        use.

          The organizational separation of DOE's basic energy 
        research program from its applied research programs makes sense 
        in many instances, but it also makes the migration of certain 
        basic research findings to applied research solutions 
        undisciplined, more difficult, and often, serendipitous.

    There are both ad hoc and, in some instances, formal structures at 
DOE that encourage communication and coordination between the various 
applied research programs and between the applied research and basic 
research programs. In the final analysis, however, the competition for 
funding from the same appropriation, bureaucratic separation, and 
different program cultures and performance measures, ultimately work 
against optimum levels of cooperation and coordination across programs.
    An ARPA-E like program could help fill these gaps and supplement 
but not supplant the missions of existing DOE programs. As noted 
earlier, the ``development of integrated concepts beyond the purview of 
single service [program],'' is one of the features of DARPA that is 
desirable for replication. To some extent, on certain key problems to 
be identified, an ARPA-E could provide the formal integrating function 
that fosters a portfolio approach to a problem. In addition, providing 
ARPA-E with administrative flexibility in contracting, hiring, etc., 
and the easy transfer of personnel and ideas between the government, 
industry and academia will further distinguish ARPA-E from existing DOE 
programs.
    Finally, replicating DARPA's formal extraction of value from the 
entire research continuum--from basic to applied to development to 
deployment--would be largely unique to the DOE system (DARPA's budget 
reflects the research continuum including basic and applied to large 
scale demonstration). Directing a minimum percentage of program funds 
to basic research--for both the national laboratories and 
universities--would protect against the tendency of DOE's energy R&D 
customer base comprised largely of industry to focus on near-term 
research and results. Congress might also consider setting aside a 
portion of ARPA's funds as venture capital for promising, innovative 
opportunities in the private sector.
    In short, ARPA-E would be distinguished from existing DOE programs 
more by its structure than by the policy objectives its research would 
address. There is, however, a danger in a ``structural'' as opposed to 
policy-driver distinction; without an upfront, clear articulation of 
some fundamental strategic research thrusts, an ARPA-E could risk 
becoming an organization in search of a mission. Nevertheless, the 
drivers described above do not differ substantially from similar gaps 
DARPA seeks to fill--``research that the services are unlikely to 
support because it is risky, does not fit [the services] specific roles 
or missions, or challenges their existing systems or operational 
concepts.''

Q5.  Can you give us a few examples of research that ARPA-E might 
pursue? Is any work being done in these areas now, and who is it funded 
by? Why couldn't any current funding agency carry out the ARPA-E agenda 
in that particular area?

A5. I would not pre-judge the research an ARPA-E might perform and 
believe this should be left to the energy technologists, not those of 
us who reside in the energy technology policy space.

Questions submitted by Representative Bart Gordon

Q1.  What do you consider to be the most pressing challenge we face in 
energy?

     Will the cumulative efforts of our current federal civilian, 
university and industrial R&D infrastructure give us a solution(s) to 
that challenge?

A1. I believe the most pressing energy challenges we face are meeting 
global energy needs at the same time we reduce carbon emissions 
sufficient to avoid the most serious impacts of global warming, and; 2) 
the transition from fossil fuels to alternative fuels without 
significant economic dislocation.

Q2.  If you were the Director of ARPA-E what three potentially 
transformational technologies would you be likely to pursue?

A2. For the mid-term, I would support a suite of technologies to 
promote the interchangeability of fossil fuels sufficient to utilize 
the same infrastructure for distribution and key end uses. Carbon 
capture and sequestration technology development is also critical. 
Finally, longer-term research in methane hydrates could dramatically 
enlarge the world's energy resource base.

Q3.  To your knowledge, is the current organizational structure of the 
Department of Energy and its various programs conducive to generating 
truly transformational energy technologies?

     Where is it lacking?

A3. DOE's applied research programs are organized around fuel sources, 
e.g., coal, oil, gas, nuclear, renewables (the efficiency program is an 
exception). The existing organizational structure and focus provides a 
solid foundation for the Department's applied research and the support 
of strong constituencies; it runs the risk however of isolating oil 
supply from transportation or fossil fuels from efficiency, for 
example, and promotes a tendency to focus on incremental or discrete 
technologies (exceptions are generally within programs, not across 
programs) as opposed to systems that integrate research needs from 
supply to distribution to end use.
    The organizational separation of DOE's basic energy research 
program from its applied research programs makes sense in many 
instances, but it also makes the migration of certain basic research 
findings to applied research solutions undisciplined, more difficult, 
and often, serendipitous.
    There are both ad hoc and, in some instances, formal structures at 
DOE that encourage communication and coordination between the various 
applied research programs and between the applied research and basic 
research programs. In the final analysis, however, the competition for 
funding from the same appropriation, bureaucratic separation, and 
different program cultures and performance measures, ultimately work 
against optimum levels of cooperation and coordination across programs. 
An ARPA-E like program could help fill these gaps and supplement but 
not supplant the missions of existing DOE programs.

Q4.  Do you believe that a DARPA-like program for energy can attract 
industrial interest sufficient to bring about real change in the energy 
technology sector?

     What are the barriers for industrial participation?

A4. At DOE, an ARPA-E that is focused primarily on applied R&D (or 
includes a substantial applied R&D component) would typically require 
industry cost share (which is not the case at DARPA). Federal 
procurement, intellectual property, contract management provisions, DOE 
orders and other federal requirements are off-putting to many industry 
players, placing de facto barriers to industry participation and cost 
share commitments--essential elements to successful applied energy R&D, 
including demonstration, deployment and technology transfer.
    Federal energy R&D is performed under the constraints of annual 
appropriations which are inconsistent from year-to-year, 
administration-to-administration and secretary-to-secretary. Also, 
program funds are largely ``mortgaged'' from the start, and 
increasingly line-itemed. The risks and limitations of the funding 
process further discourages industry participation and its commitment 
of matching funds, making it more difficult to optimize the migration 
of technologies into the marketplace. If ARPA-E is funded at relatively 
low levels in its early years, the ramp-up in the out years as 
contemplated in the NAS report would place that important increment 
(likely necessary when projects get to the demonstration phase, for 
example) in competition with other DOE programs as well as with 
programs in other agencies that are funded through the Energy and Water 
Appropriations Committee; this lack of certainty in outyear funding 
could further complicate and discourage longer-term industry 
commitments to critical projects.

Q5.  To the extent that you are familiar with the energy research 
conducted in the Department of Defense, do you see potential linkages 
between any current research activities at DARPA and the research that 
would be conducted through ARPA-E?

A5. I am not familiar with specific energy research being done at 
DARPA.

Questions submitted by Representative Eddie Bernice Johnson

Q1.  How do you feel about Mr. Gordon's legislation, H.R. 4435, 
establishing an ARPA-E?

A1. Mr. Gordon's legislation provides a welcome focus on a very 
important issue--how to appropriately organize transformational 
research and technology at the federal agency of primary jurisdiction. 
If properly organized, empowered, and funded, however, an ARPA-E type 
program could provide a new and aggressive link between the needs of 
the energy marketplace and research directions, operating as a primary 
interface between the energy industry and DOE's national laboratories 
and experts in academia.

Q2.  What is your opinion about how an ARPA-E would be organized? Would 
the director report to the head of DOE's Office of Science or directly 
to the Secretary of Energy?

A2. The NAS recommends that the ARPA-E program director report to the 
Under Secretary of Science. The ARPA-E proposal represents a fairly 
significant departure from how DOE currently conducts business. It is 
bound to raise issues of coordination with existing programs, concerns 
about picking winners, and other potential oversight issues as the 
program breaks new and controversial ground.
    These are sensitive issues both internally and externally and may 
require the imprimatur of the Secretary or Deputy Secretary whose 
portfolios are the broadest and authorities are sufficient to manage 
and mediate the controversies that could arise from such a fundamental 
change in approach to DOE research management. Also, the unique 
contractual, personnel and pay scales contemplated in an ARPA-E program 
may require greater organizational separation from existing programs 
(organizational independence is identified as a key positive feature of 
DARPA) than is possible in a reporting structure through the Under 
Secretary with line authority for other programs. From an 
organizational/reporting perspective, I believe it is essential to 
program success that the ARPA-E program director be a direct report to 
either the Secretary or Deputy Secretary.
                   Answers to Post-Hearing Questions
Responses by Frank L. Fernandez, President, F.L. Fernandez, Inc.

    In what follows, below, I have tried to provide you with answers to 
the questions that you posed. At the outset, I need to make sure that 
you understand that I am not an expert in the business of energy. As a 
result, I may miss some important points and for this I apologize, at 
the outset.
    In answering the questions, I am assuming that in creating an ARPA-
E the U.S. decided, as a matter of policy, that technological 
superiority is crucial to the energy security of the U.S. and that this 
superiority requires revolutionary, technically based innovation. 
Otherwise, there does not seem to be a need to do this.
    In addition, let me further assume that, if created, ARPA-E would 
have a mission and resources somewhat similar to DARPA's. . .to create, 
demonstrate and transition high risk, high return technologies in order 
to maintain U.S. technological superiority in energy. Also, I assume 
that ARPA-E would have the necessary authorities to accomplish the 
mission, as I stated in my testimony.

Questions submitted by Chairman Sherwood L. Boehlert

Q1.  You said at the hearing that DARPA could not be an exact analogue 
for ARPA-E, but that the DARPA model could be useful nonetheless. In 
what ways would an ARPA-E have to be different from DARPA?

A1. The common, most important lesson that I have learned in my various 
careers is that in order to successfully provide revolutionary, 
technically based innovation, there must be a balance of both 
``technology push'' and ``operational pull.'' This only comes about 
through the use of creative people who can bridge this gap. It is not 
just about financial or organizational resources.
    If this is correct, I believe that the most important challenge 
would be that ARPA-E would need to attract senior technical 
professionals who understand both the ``business of energy'' and the 
technologies that will affect the future of energy superiority.
    In the DOD, DARPA had access to very competent, technically 
trained, military officers and operationally oriented, technically 
trained DOD civilians in addition to people from the universities and 
laboratories. ARPA-E does not appear to have ready access to such a 
diverse pool of technical talent with operational backgrounds. From 
what I have been able to discern from published material, these kinds 
of people do not generally seem to reside in universities or the 
national laboratories. Finding and attracting these people in the other 
parts of the DOE will require very special recruiting authorities and 
capabilities within ARPA-E.
    In addition, ARPA-E will need to recruit people with these dual 
skills from the relevant energy industries. This will probably require 
special arrangements to guarantee that the companies involved would 
have their important technical secrets protected, while at the same 
time providing the U.S. with the knowledge of the constraints that the 
``business of energy'' places on the successful transition of 
technologies into the marketplace.
    This is the most important difference that I believe exists between 
DARPA and ARPA-E. . .the possible lack of a ready pool of available 
professional talent in the DOE to link the technology to the user of 
the technology. This difference must be addressed at the outset if 
ARPA-E is to be successful.

Q2.  You say about the examples in your testimony that they went first 
to the commercial sector, then to the military. But many experts on 
DARPA suggest that the promise of a military market has been a key to 
the success of DARPA projects. Certainly, many advances in computing 
and networking were put to work first in the military sector. And 
SEMATECH is an unusual example in that part of the impetus came from 
Congress to help a mature industry. How common has it been for DARPA 
projects to succeed commercially first and what might that indicate 
about how to set up an ARPA-E?

A2. In the world where the DOD makes the market, i.e., the actual war 
fighting systems, the promise of a military market has certainly helped 
DARPA, because the DOD could provide industry with a clear indication 
that there would, indeed, be an acquisition of a major new aircraft or 
missile system, for example. However, it has been shown time and time 
again, that unless there is a commercial use for most of the 
technologies involved in these systems, the DOD is forced to support 
the total cost of the manufacturing and maintenance infrastructure and 
ends up with a very cost ineffective system. The Nation chooses to do 
this with technologies like stealth, but not with network technologies, 
for example.
    What DARPA does for the majority of the technologies that it 
sponsors, which end up as having both military and commercial use, is 
to fund the maturation of the technology and the demonstration in a 
realistic operating environment, using the military. By funding this 
risky stage before there is a clear market need, DARPA helps to ``make 
a market.'' This is the way that revolutionary innovation occurs, when 
it does.
    ARPA-E does not, generally, have an acquisition partner in the DOE. 
As a result, I think that it will need to carefully pick its projects 
in selected areas where the DOE, as part of the Federal Government can 
provide the energy industry with something special, besides purely 
financial subsidies. These subsidies do not require an organization 
like ARPA-E.
    This initial choice of focus areas for ARPA-E must be well thought 
out, in my opinion. DARPA had space, because of Sputnik. It did not, 
initially need to deal with all of the DOD technology issues. Space 
provided a problem that was both one of national importance and where 
technology based innovation was paramount.
    As a thought experiment, suppose that ARPA-E initially focused on 
the energy needed for transportation in the U.S. A key issue here seems 
to be the need to reduce U.S. dependence on foreign, petroleum based 
fuels. Applicable technologies will include more efficient and multi-
fuel vehicle propulsion design and possible non-petroleum based fuels.
    My very rough estimate is that government owned and fueled vehicles 
(federal, state, local, military) represent about ten percent of the 
U.S. fuel consumed for transportation. This is a niche market that will 
use commercial suppliers but where the government could influence, 
mature and demonstrate technologies in a realistic environment and at a 
scale where the transition to non-government utilization could be 
realistically estimated.
    ARPA-E could partner with DARPA and its access to military and 
civilian talent in the DOD for the military transportation. It could 
tap key, knowledgeable DOE talent in the Federal, State and local 
government subsidized transportation areas.
    With this arrangement, ARPA-E could establish programs to look at 
technologies presently considered high risk but potentially high return 
for planned transportation platforms and for kits needed to back fit 
legacy platforms. Finally, it could do the same for the many 
alternative fuel sources being proposed in order to demonstrate 
scalable, environmentally acceptable, technologies to make these 
alternatives commercially viable.
    The government vehicles could be the test market for these 
technologies and the military might even agree to long-term buys of the 
best performers. This would be a large, but manageable program and 
could form a good basis to test the hypothesis that an ARPA-E could add 
significant value to the DOE activity.
    This is only one example and is certainly not well thought out, but 
might be used to initiate debate and thought.

Q3.  You said in your testimony that DARPA has been more like an angel 
investor than a venture capitalist. Could you elaborate on what you 
mean by that and how it might apply to an ARPA-E?

A3. Angel investors are often individuals with detailed knowledge of 
particular industries and quite often will invest in start up companies 
with the potential for a new technology and no established business 
plan. Venture capitalists generally focus on supplying a market need, 
not necessarily on making a market.
    Since DARPA works with many companies and individuals who have good 
ideas for technologies that can solve problems, even though the markets 
for these may not currently exist, I think that DARPA is more like an 
angel investor. DARPA is not driven by military requirements and 
current acquisition programs.
    The major impact that this observation has on the construct of an 
ARPA-E is to make sure that, at the outset, it is understood, by all, 
that ARPA-E is not the organization to subsidize investments for known 
technologies and known markets. It must be the organization with the 
charter to try to leapfrog established technology development roadmaps. 
It must be allowed to back projects that fail because the technical 
reach is too far in return for the market maker program that is truly 
revolutionary.

    Before I give my answer, I want to repeat my recommendation that if 
such an Agency is established, it be given a name more in line with its 
mission concerning the 21st century energy needs of the Nation.

Questions submitted by Representative Bart Gordon

Q1.  What do you consider to be the most pressing challenge we face in 
energy?

     Will the cumulative efforts of our current federal civilian, 
university and industrial R&D infrastructure give us a solution(s) to 
that challenge?

A1. I feel that our most pressing challenge in energy is to see how 
much we can use technology to do away with our dependence on foreign 
sources of energy and, eventually, to transition to renewable, sources 
of energy.
    In my opinion, the R&D in the federally funded Laboratories and 
Academia, while representing excellent science and potential 
innovation, does not link well with the evolutionary, low risk, product 
oriented work in the industrial sector. There is a large gap between 
discovering new science, demonstrating an invention using this 
discovery and fitting this invention into an established business 
model. Most revolutionary inventions do not do as well in established 
business models as the evolutionary developments, precisely because the 
evolutionary products are satisfying current and near-term business 
requirements.
    To be successful, a revolutionary innovation requires someone who 
will bet their career on the seeing how the business model can be 
changed to accommodate this innovation (the entrepreneur) and someone 
in the particular industry sector who can protect and nurture this 
person and the project while the innovation is becoming a competitive 
way of doing business (the top cover).
    ARPA-E can be the vehicle to fund, provide and connect these 
entrepreneurial persons to industry visionaries.

Q2.  If you were the Director of ARPA-E, what three potentially 
transformational technologies would you be likely to pursue?

A2. As Director of ARPA-E, I think that I would, initially, focus on 
technologies to:

        a.  Reduce the cost of manufacturing the needed amounts of 
        currently used transportation fuels (gasoline, diesel, aircraft 
        fuel, etc.) from U.S. alternative energy sources vs. petroleum.

        b.  Build fission reactors with radioactive waste products 
        whose lifetime is measured in hundreds of years vs. the many 
        thousands of years in our current reactor waste, which makes 
        safe disposal an impossible engineering problem.

        c.  Accelerate work going on in increasing the efficiency of 
        cheap, newer, plastic solar cells for direct conversion of 
        solar power to electricity.

Q3.  To your knowledge, is the current organizational structure of the 
Department of Energy and its various programs conducive to generating 
truly transformational energy technologies?

    Where is it lacking?

A3. The current organization generates an incredible array of new 
technologies that could be transformational but does not have an Agency 
whose charter, culture is to make ``deals'' with industry to fund the 
work needed to mature the technology and invent, adapt business 
practices to this new technology and where failure can occur for a 
variety of reasons.

Q4.  Do you believe that a DARPA-like program for energy can attract 
industrial interest sufficient to bring about real change in the energy 
technology sector?

     What are the barriers for industrial participation?

A4. Yes, a DARPA-like program could bring about real change in the 
energy business, but only if it, initially focuses on some particular 
subset of the problem. The energy problem is too be too be tackled by a 
DARPA like organization all at once. I suggest that the subset of fuel 
for transportation, near- and far-term, could be a good starting point. 
Here, technology for cost competitive, environmentally acceptable fuel 
manufacturing processes using non-petroleum domestic energy sources 
could be a natural area where there are many ideas but few with the 
level of technology readiness that would attract industry.

Q5.  To the extent that you are familiar with the energy research 
conducted in the Department of Defense, do you see potential linkages 
between any current research activities at DARPA and the research that 
would be conducted through ARPA-E?

A5. I think that a major linkage between DARPA and ARPA-E could be the 
discovery, invention and development of technologies to allow for cost 
competitive manufacturing of current transportation fuels from domestic 
sources, which is, currently, very important to the military and the 
Nation as a whole.
    A joint program office could be staffed and funded by both 
agencies. The military services could agree to start and sustain a 
prototype market for the fuel and to test emerging cost savings 
technologies that resulted form the joint venture. The DOE could 
provide access to willing industrial sector people who would provide 
the non-petroleum energy sources, and who might eventually, create an 
industry funded consortium to maintain competitiveness against foreign 
fuel suppliers. This project could be very focused in space and time 
and would test the ARPA-E concept.

Questions submitted by Representative Eddie Bernice Johnson

Q1.  How do you feel about Mr. Gordon's legislation, H.R. 4435, 
establishing an ARPA-E?

A1. The legislation proposed by Mr. Gordon is a good start but the 
difference in roles, missions between ARPA-E the Labs and Academia must 
be crystal clear or the result will be a turf battle for limited 
resources.

Q2.  What is your opinion about how an ARPA-E would be organized? Would 
the director report to the head of DOE's Office of Science or directly 
to the Secretary of Energy?

A2. ARPA-E does not fit into the Office of Science. Its job is to use 
science to help create, demonstrate technologies and systems for the 
industrial sector to implement, as I said earlier in this note. In my 
opinion, ARPA-E must report to the Secretary of Energy to give it the 
``top cover'' that it will need to be successful.
    The culture of scientific, excellence and continuity required for a 
department of science is not consistent with the entrepreneurial 
culture needed to make an ARPA-E successful. As I said in my testimony:
    Like DARPA, I think that ARPA-E should be the central energy 
research and development organization in the DOE and should have a 
clear, national purpose for its projects that differentiates it from 
the laboratories and other agencies. It should have visibility and 
access to the top management of the Department and not be part of an 
established R&D bureaucracy.
    Like DARPA, I think that it should have a mandate to create, 
demonstrate and transition high risk, high return technologies to 
maintain U.S. technological superiority in energy.
    Like DARPA, I think that it should be funding agency, with very 
little infrastructure, a flat organization and a small, very competent, 
entrepreneurial, technical staff. Budget and program control should 
rest with the Director and the program manager and the agency should 
enforce constant turnover of both programs and staff.
    Like DARPA, it should have both the special authorities and the 
resources needed to exercise these authorities. For example, while 
flexible contracting and hiring authorities are necessary, implementing 
these authorities requires dedicated, in house, resources.
    Unlike DARPA, however, ARPA-E will be in the energy business, not 
the defense business. I do not think that it should be a strict clone 
of a defense agency.
    Instead, I think that ARPA-E should receive the funding, 
flexibility, leadership authorities and, most importantly, the time 
necessary to let it become the change agent for the DOE.
                   Answers to Post-Hearing Questions
Responses by Catherine Cotell, Vice President for Strategy, University 
        and Early Stage Investment, In-Q-Tel

Questions submitted by Chairman Sherwood L. Boehlert

Q1.  Does In-Q-Tel support any technologies that are primarily energy 
technologies? If so, what are they and why are they useful to the 
intelligence community?

A1. Yes, In-Q-Tel has made investments in energy-related technologies. 
Many of In-Q-Tel's energy investments are motivated by an Intelligence 
Community partner problem set which has expressed a need for mobile 
power sources. Consumer electronics (cell phones and laptops, for 
example) are driving the development for the mass market of high 
energy, lightweight, small form factor, reliable power sources that do 
not require frequent recharging. In-Q-Tel supports the Intelligence 
Community's exposure to emerging commercial energy technology 
breakthroughs via its investments in companies aiming at the large 
consumer electronics market.
    Examples of In-Q-Tel's investments in the energy sector include:

          Electro-Energy, Inc., Danbury, CT, with manufacturing 
        facilities in Colorado Springs, CO (now publicly traded)--
        markets a novel, bipolar rechargeable battery design offering 
        high energy density and high power density.

          Nextreme Thermal Solutions, Research Triangle Park, 
        NC--develops and manufactures embedded thermoelectric 
        components utilizing novel super lattice nanotechnology to 
        operate as a power generator for converting heat to 
        electricity.

          Qynergy, Albuquerque, NM--is a portable power 
        solutions company, focusing on integrated hybrids of 
        radioisotope-fueled energy cells, photo-voltaics, energy-
        harvesting systems and advanced lithium batteries.

          Skybuilt Power, Arlington, VA--sells a Mobile Power 
        Station for rapid deployment of solar, wind, micro-hydro, and 
        fuel-based power.

    In addition to these companies in our portfolio, In-Q-Tel is 
actively evaluating other investment opportunities in the energy sector 
including companies offering technology products in the areas of fuel 
cells, active and passive solar energy, energy harvesting from non-
traditional sources, and novel materials for power applications.

Q2.  Is the venture capital market becoming more interested in energy 
technologies? Do you have a sense of whether the lack of venture 
capital is a significant barrier to commercializing new energy 
technologies? What indicators would one consult to determine that?

A2. The Venture Capital (VC) market certainly appears to be showing an 
increased interest in alternative energy. According to Clean Edge, a 
Portland, Oregon-based research firm and Nth Power, an energy tech 
venture firm based in San Francisco, U.S.-based venture capital firms 
invested $917 million in energy technologies in 2005, a 28 percent 
increase over 2004. This $917 million represented only 4.7 percent of 
all VC investments last year, but considering that six years ago, only 
one percent of all VC dollars were invested in energy technology, as 
observed by the past president of the National Venture Capital 
Association, Mark Heeson, VC investment in clean energy has gone from 
``a drop in the bucket, to a trickle in the bucket.''
    The availability of venture capital can be linked to innovation in 
almost any sector, including energy. Increasing the availability of 
capital to small firms focused on commercializing energy technologies, 
whether the capital comes from venture or government sources, would 
likely enhance innovation in the energy sector. From a venture 
perspective, the barriers to investment in alternatives to fossil fuels 
include the large size of the investments required relative to 
investment opportunities in other sectors, the long lead time to 
adoption, and the ready availability of inexpensive alternatives to 
many of the technologies.

Q3.  What would be the key factors in making an energy version of In-Q-
Tel a success? How could such an organization decide what to invest in 
since the criterion would presumably not be how useful a particular 
technology would be to the government? Are there any dangers in making 
the government a venture capitalist in what is essentially a civilian, 
commercial market in which the government's needs are not particularly 
different from anyone else's?

A3. A fundamental goal of In-Q-Tel is to accelerate the rate at which 
the CIA and the Intelligence Community can utilize emerging 
technologies in the interests of national security. In-Q-Tel's 
investment decisions are driven by the impact the technology will have 
on CIA and Intelligence Community performance and operations. In-Q-Tel 
uniquely uses the venture capital model to achieve this goal. As a 
strategic venture capital firm operating on behalf of the CIA and the 
Intelligence Community, In-Q-Tel invests in technologies that ordinary 
procurement processes would likely never discover. Moreover, even if 
they were discovered, government procurement processes would likely be 
so cumbersome as to discourage the small firms--who often spearhead the 
development of really new technologies--from cooperating with the 
government.
    After more than six years of operations, In-Q-Tel has identified 
several elements for success of the model for the CIA and the 
Intelligence Community. These include strong support from the host 
organization; a close partnership structure with a group in the host 
organization tasked with assisting in problem definition and subsequent 
solution transfer; a good relationship with the procurement office at 
the host agency; shared expectations; a long-term financial commitment; 
focus on mission impact (more than financial return); emphasis on 
transferring solutions to end users and financial commitment from those 
users; and the ability to function in the venture community, exercising 
best business practices.
    Underlying essentially all the elements for success named above is 
In-Q-Tel's understanding of the needs of the CIA and the Intelligence 
Community. In-Q-Tel derives that understanding from its relationship 
with the In-Q-Tel Interface Center (QIC), which is housed at the CIA 
and also serves as executive agent for In-Q-Tel's work with other 
elements of the Intelligence Community.
    As I understand the objectives for DOE funding, there is 
consideration of using an In-Q-Tel model to spur the development of new 
energy technologies for the commercial market, not the government 
market. If that is the case, DOE's challenge will be to understand 
clearly what the commercial market demands. In-Q-Tel benefits greatly 
from a very close relationship with our primary customers, the CIA and 
the broader Intelligence Community. For DOE to succeed, they will, in 
my view, need to find means to accurately gauge future demands as well 
as opportunities in the commercial energy markets. It is also worth 
noting that the demands and opportunities in the energy market are 
influenced significantly by policy and regulation in the field. As with 
many markets, the regulatory environment may discourage, or conversely, 
encourage, venture investment in the energy market.
    In-Q-Tel has always positioned itself carefully with respect to its 
operations as a government-funded venture capital firm in a civilian 
market. In-Q-Tel's position has been that the government should not be 
competing with private money--but rather, the government should be 
using a small amount of government funds to take advantage of the 
genius of the VC system--in a careful and thoughtful way--to benefit 
unique government needs and thereby the whole nation. If DOE intends to 
use the In-Q-Tel model to develop technology for the commercial market 
only, not the government market, I believe some modification of In-Q-
Tel's model will be necessary to adapt it to DOE's purposes.

Questions submitted by Representative Bart Gordon

Q1.  What do you consider to be the most pressing challenge we face in 
energy? Will the cumulative efforts of our current federal civilian, 
university and industrial R&D infrastructure give us a solution to that 
challenge?

A1. There are clearly energy challenges facing our country and our 
economy including decreasing reliance on foreign sources, increasing 
efficiency in energy use, and broadening our set of resource options. 
My testimony to the Committee addressed a means by which the 
intelligence community accesses the innovations generated by our 
country's civilian, university and industrial R&D infrastructure in 
order to address some of the hardest challenges the Intelligence 
Community faces. In-Q-Tel does not so much invent new innovations as 
accelerate the rate at which the intelligence community can benefit 
from existing innovations, and find new ways to use technology to solve 
problems.
    The current federal civilian, university, and industrial R&D 
infrastructure has obviously helped American ingenuity become the envy 
of the world. In-Q-Tel has assembled an agile team of technology and 
business experts who comb through that infrastructure to identify and 
strengthen technology solutions that can address capability needs of 
the Intelligence Community.
    In-Q-Tel has a broad and robust outreach policy aimed at tapping 
all sources of technology. In addition to soliciting business plans via 
its web site www.In-Q-Tel.org, In-Q-Tel actively scouts for 
technologies and investment opportunities by capitalizing on its 
technology network that includes other venture investors, university 
faculty and technology commercialization offices, national and 
corporate laboratory researchers and their licensing offices, and 
program managers at government funding agencies.
    In-Q-Tel has engaged with nearly 90 commercial companies, most of 
which were previously unknown to the government, and 11 universities 
and research labs, which In-Q-Tel identified through its commercial and 
academic outreach programs. In-Q-Tel has received and reviewed over 
5,500 business plans, and we have also cultivated a network of more 
than 200 venture capital firms and 100 labs and research organizations, 
further broadening Intelligence Community access to innovative 
technologies.
    Once having identified promising technological solutions, In-Q-Tel 
uses the strength of the marketplace to deliver those capabilities to 
the intelligence community. For every dollar of investment In-Q-Tel 
makes, we leverage an average of $8 of private investment in bringing 
technologies to the market. In our six-year history we have delivered 
significant mission impact to the CIA and the broader Intelligence 
Community, resulting in the application of more than 120 technology 
solutions and leveraging more than one billion dollars in private 
sector funding to support R&D that matches government needs.
    This outreach--and the corollary of strengthened connectivity 
between the many different aspects of our national research, 
development, testing, evaluation, marketing, and deployment efforts--
has helped In-Q-Tel address many of the most pressing challenges faced 
by the intelligence community. A similar approach directed at energy 
challenges may be valuable as part of an overall integrated strategy to 
address these challenges.

Q2.  If you were the Director of ARPA-E what three potentially 
transformational technologies would you be likely to pursue?

A2. In-Q-Tel does not purport to have the deep technical experience in 
energy that the director of ARPA-E will have. In-Q-Tel does have 
experience making bets on technology, however. In-Q-Tel has embraced a 
portfolio strategy for delivering value to the intelligence community. 
Because our government partners have critical technology needs, when we 
do early stage investing, we frequently invest in multiple component 
technologies that together provide a viable solution.
    One of the strengths of the venture investing model is that In-Q-
Tel's own technology, market, and business assessments are validated by 
the diligence conducted by its co-investors. Over the six years that 
In-Q-Tel has been in operation, In-Q-Tel has developed a reputation for 
conducting among the most rigorous technical due diligence in the 
investment community, and In-Q-Tel has found that other investors rely 
on In-Q-Tel's assessment of the soundness of technologies it examines.
    In the context of your question, if ARPA-E adopted elements of In-
Q-Tel's venture investing model, the selection of research and 
development projects to be undertaken by any additional Department of 
Energy effort could be guided and informed by realistic insight into 
potential market adoption and use.

Q3.  To your knowledge, is the current organizational structure of the 
Department of Energy and its various programs conducive to generating 
truly transformational energy technologies? Where is it lacking?

A3. I will defer to others for the evaluation of the Department of 
Energy's structure.

Q4.  Do you believe that a DARPA-like program for energy can attract 
industrial interest sufficient to bring about real change in the energy 
technology sector? What are the barriers for industrial participation?

A4. Assuming a healthy supply of new technologies being created as a 
result of basic research funding, as I noted in my written testimony, 
the barriers to attracting sufficient private sector resources to bear 
on bringing new technologies to the market can all be distilled down to 
one factor: money in the marketplace. Companies will only take on the 
task of productizing a new technology if there is a high probability 
that they will make money selling the product. That statement is true 
regardless of whether the customer for the product is the Government or 
the wider commercial market.
    So while In-Q-Tel's venture capital model is not a substitute for 
fundamental research funding, we have provided significant added value 
to the Intelligence Community by leveraging government and private 
sector investments in research. In fact, the majority of the companies 
in which In-Q-Tel has invested have their roots in fundamental research 
conducted at universities and laboratories supported by NSF, DOE, ONR, 
and DARPA. Moreover, before the products are delivered back to the 
Government, other private investment capital in addition to In-Q-Tel's 
has been invested in the companies, leveraging additional private 
sector resources to deliver a better product to government.
    As an investor, In-Q-Tel can influence the product development 
roadmap to ensure that the commercial products will indeed meet the 
Intelligence Community's needs while adding value for the commercial 
customers as well. Among the advantages of commercial technology are 
lower initial and long-term costs, easier integration, longer 
technology lifetime, faster development, better user interfaces, 
incremental upgrades, and next-generation improvements, all developed 
by leveraging success in the commercial marketplace. Our success stems 
from linking commercial viability and technical excellence with our 
government partners' needs.

Q5.  To the extent that you are familiar with the energy research 
conducted in the Department of Defense, do you see potential linkages 
between any current research activities at DARPA and the research that 
would be conducted through ARPA-E?

A5. Speaking from the perspective of an independent but government-
funded innovation accelerator that is somewhat agnostic as to the 
source of innovations we bring to bear on Intelligence Community 
problems, I can best respond regarding linkages between potential 
approaches instead of specific research initiatives.
    As the Committee has noted, some have suggested that an ARPA-E 
should be designed to foster directed basic research, and other 
proponents suggest its role should be to get products into the 
marketplace. In-Q-Tel was founded to address a specific and unique 
challenge that is somewhat related: namely, how to provide the U.S. 
Intelligence Community with access to the technology innovations being 
brought to the commercial market by small, start-up companies, or other 
sources of innovation such as national labs and universities, who may 
not target the Government for sales. Like any other venture investor, 
In-Q-Tel ``cherry picks'' technologies with high potential for 
commercial success. Because In-Q-Tel is a strategic investor for the 
Intelligence Community, In-Q-Tel selects from the entire range of 
commercially viable technologies those that have relevance to 
Intelligence Community mission. Moreover, our portfolio approach to 
investment leads us to invest in multiple technologies, from varied 
sources, that when linked together may form an end-to-end solution to a 
problem that no single technology or source would address as 
effectively. Indeed, because In-Q-Tel is not the source of the 
technologies themselves, we evaluate multiple technologies from 
multiple sources objectively. As an investor, of course, we look for 
winners from across stovepipes and sometimes create winners by linking 
technologies from difference sources.
    On the development timeline from incipient idea to fully 
productized, off-the-shelf commodity, In-Q-Tel typically engages 
sometime after the demonstration of a working prototype. That is, In-Q-
Tel does not typically invest in early research the way that DARPA or 
other government funding agencies do, but rather, takes the output of 
early research and supports its development into technology products 
and sustainable commercial outlets from which to buy those products. In 
some cases, In-Q-Tel provides very directed ``gap funding'' to assist 
in bridging the so-called ``valley of death'' between the basic 
research funding and the point at which the technology opportunity is 
sufficiently mature as to readily attract institutional investors or, 
in the case, of DARPA, be ready for delivery under a DOD procurement or 
acquisition program. As a separate, commercially informed entity that 
can tap on all sources for technology solutions, In-Q-Tel has shown 
value for the Intelligence Community. Elements of In-Q-Tel's operations 
may contribute to solving energy challenges in a similar way.

Questions submitted by Representative Eddie Bernice Johnson

Q1.  How do you feel about Mr. Gordon's legislation, H.R. 4435, 
establishing an ARPA-E?

A1. I will defer to others for the evaluation of proposed legislation.

Q2.  What is your opinion about how an ARPA-E would be organized? Would 
the director report to the head of DOE's Office of Science or directly 
to the Secretary of Energy?

A2. I will defer to others for the evaluation of proposed Dept. of 
Energy structures.
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