[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
                       ENERGY CRITICAL ELEMENTS: 
                     IDENTIFYING RESEARCH NEEDS AND 
                          STRATEGIC PRIORITIES 

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

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON ENERGY AND
                              ENVIRONMENT

              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                      WEDNESDAY, DECEMBER 7, 2011

                               __________

                           Serial No. 112-56

                               __________

 Printed for the use of the Committee on Science, Space, and Technology

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

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              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                    HON. RALPH M. HALL, Texas, Chair
F. JAMES SENSENBRENNER, JR.,         EDDIE BERNICE JOHNSON, Texas
    Wisconsin                        JERRY F. COSTELLO, Illinois
LAMAR S. SMITH, Texas                LYNN C. WOOLSEY, California
DANA ROHRABACHER, California         ZOE LOFGREN, California
ROSCOE G. BARTLETT, Maryland         BRAD MILLER, North Carolina
FRANK D. LUCAS, Oklahoma             DANIEL LIPINSKI, Illinois
JUDY BIGGERT, Illinois               GABRIELLE GIFFORDS, Arizona
W. TODD AKIN, Missouri               DONNA F. EDWARDS, Maryland
RANDY NEUGEBAUER, Texas              MARCIA L. FUDGE, Ohio
MICHAEL T. McCAUL, Texas             BEN R. LUJAN, New Mexico
PAUL C. BROUN, Georgia               PAUL D. TONKO, New York
SANDY ADAMS, Florida                 JERRY McNERNEY, California
BENJAMIN QUAYLE, Arizona             JOHN P. SARBANES, Maryland
CHARLES J. ``CHUCK'' FLEISCHMANN,    TERRI A. SEWELL, Alabama
    Tennessee                        FREDERICA S. WILSON, Florida
E. SCOTT RIGELL, Virginia            HANSEN CLARKE, Michigan
STEVEN M. PALAZZO, Mississippi       VACANCY
MO BROOKS, Alabama
ANDY HARRIS, Maryland
RANDY HULTGREN, Illinois
CHIP CRAVAACK, Minnesota
LARRY BUCSHON, Indiana
DAN BENISHEK, Michigan
VACANCY
                                 ------                                

                 Subcommittee on Energy and Environment

                   HON. ANDY HARRIS, Maryland, Chair
DANA ROHRABACHER, California         BRAD MILLER, North Carolina
ROSCOE G. BARTLETT, Maryland         LYNN C. WOOLSEY, California
FRANK D. LUCAS, Oklahoma             BEN R. LUJAN, New Mexico
JUDY BIGGERT, Illinois               PAUL D. TONKO, New York
W. TODD AKIN, Missouri               ZOE LOFGREN, California
RANDY NEUGEBAUER, Texas              JERRY McNERNEY, California
PAUL C. BROUN, Georgia                   
CHARLES J. ``CHUCK'' FLEISCHMANN,        
    Tennessee                            
RALPH M. HALL, Texas                 EDDIE BERNICE JOHNSON, Texas



                            C O N T E N T S

                      Wednesday, December 7, 2011

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

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

                           Opening Statements

Statement by Representative Andy Harris, Chairman, Subcommittee 
  on Energy and Environment, Committee on Science, Space, and 
  Technology, U.S. House of Representatives......................    19
    Written Statement............................................    20

Statement by Representative Brad Miller, Ranking Member, 
  Subcommittee on Energy and Environment, Committee on Science, 
  Space, and Technology, U.S. House of Representatives...........    20
    Written Statement............................................    22

                               Witnesses:

The Honorable David Sandalow, Assistant Secretary for Policy and 
  International Affairs, Department of Energy
    Oral Statement...............................................    24
    Written Statement............................................    25

Dr. Derek Scissors, Research Fellow, Heritage Foundation
    Oral Statement...............................................    28
    Written Statement............................................    31

Dr. Robert Jaffe, Jane and Otto Morningstar Professor of Physics, 
  Massachusetts Institute of Technology
    Oral Statement...............................................    39
    Written Statement............................................    41

Dr. Karl Gschneidner, Senior Materials Scientist, Ames National 
  Laboratory
    Oral Statement...............................................    46
    Written Statement............................................    48

Mr. Luka Erceg, President and CEO, Simbol Materials
    Oral Statement...............................................    51
    Written Statement............................................    53

              Appendix: Answers to Post-Hearing Questions

The Honorable David Sandalow, Assistant Secretary for Policy and 
  International Affairs, Department of Energy....................    76

Dr. Derek Scissors, Research Fellow, Heritage Foundation.........    86

Dr. Robert Jaffe, Jane and Otto Morningstar Professor of Physics, 
  Massachusetts Institute of Technology..........................    88

Dr. Karl Gschneidner, Senior Materials Scientist, Ames National 
  Laboratory.....................................................    89

Mr. Luka Erceg, President and CEO, Simbol Materials..............    90


                       ENERGY CRITICAL ELEMENTS:
                     IDENTIFYING RESEARCH NEEDS AND
                          STRATEGIC PRIORITIES

                              ----------                              


                      WEDNESDAY, DECEMBER 7, 2011

                  House of Representatives,
                    Subcommittee on Energy and Environment,
               Committee on Science, Space, and Technology,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 10:03 a.m., in 
Room 2318 of the Rayburn House Office Building, Hon. Andy 
Harris [Chairman of the Subcommittee] presiding.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman Harris. Good morning. The Subcommittee on Energy 
and Environment will come to order.
    Welcome to today's hearing entitled ``Energy Critical 
Elements: Identifying Research Needs and Strategic 
Priorities.'' In front of you are packets containing the 
written testimony, biographies and Truth in Testimony 
disclosures for today's witness panel. I now recognize myself 
for five minutes for an opening statement.
    Good morning, and welcome to today's hearing. The purpose 
of this hearing is to examine the importance of and issues 
surrounding energy-critical elements, particularly as they 
relate to the government's role in supporting research and 
development.
    Energy-critical elements are elements, including rare 
earths, which are of increasing importance to energy-related 
technology areas from high-performance magnets to photovoltaic 
solar cells to next generation batteries and fuel cells. They 
are also important to high-tech applications such as computers 
and cell phones and key defense uses such as jet engines and 
weapons systems.
    While energy-critical elements encompass a broader set of 
elements beyond just rare earths, the growing demand for rare 
earths amidst a volatile market warrants particular attention 
and concern. China currently produces 97 percent of the global 
supply of rare earths. This is a result of a deliberate and 
decades-long strategy to develop its geologic reserves, 
undercut market price and drive out competition. The strategy 
succeeded, and China has recently reduced export quotas and 
increased levies on exported rare earth oxides in an attempt to 
exploit its position and manipulate the market. As a result, 
the rare earth marketplace of the last two years has suffered 
from instability, wild price swings, and uncertain supplies.
    There are indications, however, that price spikes resulting 
from China's behavior have triggered positive market 
developments. In light of higher prices, producers in the 
United States and ally nations have announced plans to develop 
rare earth reserves around the world, and companies such as 
Toyota and General Electric are pursuing demand reductions 
through R&D on recycling, substitute materials and increased 
use efficiencies. This led one investor analyst to conclude 
that ``the principal customer for rare earth metals is a global 
automotive industry using rare earth permanent magnets. That 
industry will engineer this stuff out.''
    While a responsive market will continue to drive toward 
solutions, there are reasonable and proper steps the Federal 
Government can and should pursue in this area. I believe 
Representative Hultgren's Energy Critical Elements Advancement 
Act sets forth the appropriate structure and direction to this 
end.
    For example, a national resource assessment of potential 
geologic reserves would deliver key information to the market 
and benefit both producers and consumers of energy-critical 
elements. With respect to R&D, focusing federal efforts in 
basic material science and chemistry related to energy-critical 
elements will complement private sector efforts and enable 
accelerated innovations. By focusing limited taxpayer resources 
on basic science research, we can secure the greatest return on 
investment, while avoiding the common problem of picking 
technology winners and losers.
    I look forward to hearing from the witnesses today on these 
and other policy issues related to this important topic.
    [The prepared statement of Mr. Harris follows:]
               Prepared Statement of Chairman Andy Harris
    The purpose of this hearing is to examine the importance of and 
issues surrounding Energy Critical Elements, particularly as they 
relate to the government's role in supporting research and development. 
Energy Critical Elements are elements, including rare earths, which are 
of increasing importance to energy-related technology areas from high-
performance magnets to photovoltaic solar cells to next generation 
batteries and fuel cells. They are also important to high-tech 
applications such as computers and cell phones and key defense uses 
such as jet engines and weapons systems.
    While energy critical elements encompass a broader set of elements 
beyond just rare earths, the growing demand for rare earths amidst a 
volatile market warrants particular attention and concern.
    China currently produces 97% of the global supply of rare earths. 
This is a result of a deliberate and decades-long strategy to develop 
its geologic reserves, undercut market price and drive out competition. 
The strategy succeeded, and China has recently reduced export quotas 
and increased levies on exported rare earth oxides in an attempt to 
exploit its position and manipulate the market. As a result, the rare 
earth marketplace of the last two years has suffered from instability, 
wild price swings, and uncertain supplies.
    There are indications, however, that price spikes resulting from 
China's behavior have triggered positive market developments. In light 
of higher prices, producers in the U.S. and ally nations have announced 
plans to develop rare earth reserves around the world and companies 
such as Toyota and General Electric are pursuing demand reductions 
through R&D on recycling, substitute materials and increased use 
efficiencies. This led one investor analyst to conclude that, ``the 
principal customer for rare-earth metals is a global automotive 
industry using rare earth permanent magnets. That industry will 
engineer this stuff out.''
    While a responsive market will continue to drive toward solutions, 
there are reasonable and proper steps the federal government can and 
should pursue in this area. I believe Representative Hultgren's 
``Energy Critical Elements Advancement Act'' sets forth the appropriate 
structure and direction to this end.
    For example, a national resource assessment of potential geologic 
reserves would deliver key information to the market and benefit both 
producers and consumers of energy critical elements. With respect to 
R&D, focusing Federal efforts in basic materials science and chemistry 
related to energy critical elements will complement private sector 
efforts and enable accelerated innovations. By focusing limited 
taxpayer resources on basic science research, we can secure the 
greatest return on investment, while avoiding the common problem of 
picking technology winners and losers.

    Chairman Harris. I yield back the balance of my time and 
recognize Mr. Miller for his opening statement.
    Mr. Miller. Thank you, Mr. Chairman, and I thank you for 
calling this hearing.
    When the Committee first looked at shortages in rare earths 
in 2010, we had hearings in the Subcommittee on Investigations 
and Oversight, which I then chaired, we were concerned because 
China had made it very clear that they would use their monopoly 
supply position to manipulate markets, to capture manufacturing 
jobs and extract excessive profit from a world that was just 
then discovering the critical nature of rare earth elements.
    We wrote a bill that established the Office of Science and 
Technology Policy as the center for an interagency process 
designed to establish a continuing research effort. We wanted 
to ensure that our country and our employers and our consumers 
would not be held hostage by the Chinese government's 
manipulation of rare earth markets. The Department of Energy 
was also an important part of the response with 
responsibilities for research and for producing a new 
generation of experts who could contribute to work in this 
area.
    That bill was introduced by my then-Vice Chair, Kathy 
Dahlkemper from Pennsylvania. It was marked up in Committee. It 
was passed by the House with 332 votes, obviously a bipartisan 
vote. And in this Congress, I have introduced that bill again, 
the bill introduced by Kathy Dahlkemper, with minor changes, 
and I hope that the Committee can take this matter up and 
consider that bill as well as Mr. Hultgren's and we can move 
forward in time for Senate action.
    As I said, I am not the only member with a bill in this 
Congress or even on this Committee. My colleague, our colleague 
from Illinois, Mr. Hultgren, also has a bill, and there are 
some broad areas of agreement between us. We both put DOE at 
the center of a research effort. His bill is stronger than mine 
in its definition of critical materials and I prefer his 
language on that point. But my bill has some advantages as 
well, for example, its assignment of interagency responsibility 
to OSTP. I strongly believe that we would work out a compromise 
bill on an issue that affects every American and does not 
appear to straddle any of the many partisan fault lines in 
American politics. Surely neither party would want our leading 
frenemy to have a stranglehold on materials critical to our 
national security and to our economy.
    I am glad that we are having this hearing, but I am 
surprised it has taken so long.
    If we don't act, it may not matter in the short run. The 
Obama Administration deserves credit for quick and effective 
steps to establish an interagency planning and coordination 
process. They have also asked the Department of Energy to look 
aggressively at steps it can take to spur research and support 
emerging American supplies of critical materials. I am 
confident that the President, Dr. Holdren, and Secretary Chu 
are doing all they can in this area.
    But my concern is what happens moving forward. Our 
government is sometimes quite good at responding to a sudden 
crisis. What we need is an ability to keep watch on critical 
materials, anticipate problems and create policies that head 
off rather than respond to a crisis only after it is upon us. I 
think that both Mr. Hultgren and I agree on this, though we 
structure the authorities for standing watch somewhat 
differently.
    And there is ample evidence of market failure here. The 
argument that the market is working is based on the fact that 
prices for various rare earths have dropped, but we have seen 
that before. In the 1990s, prices dropped because the Chinese 
government was controlling its production and setting global 
prices to drive competitors, and the price rose because the 
Chinese government began to exploit the monopoly it had gained 
by pricing out competitors and then immediately drove prices up 
and used that stranglehold on supplies to coerce manufacturers 
who needed the materials to set up their manufacturing in 
China.
    Even if current price drops were not mainly the result of a 
global recession, there is no reason to think that if we are 
not smart about how we support those industries, the Chinese 
government won't just make the same moves all over again. To 
believe that markets can work, when the greatest player in a 
particular industry is a hybrid Communist-capitalist state, a 
mixture of command and a market economy, is to cling to 
ideology in the face of ample evidence that it just ain't so.
    I hope we can all work together to move a bill in this 
area. This Committee now has no bills that have been passed the 
House. Zero. None. And for this Committee, that is 
unprecedented. I encourage the majority to consider working on 
a bipartisan bill on critical materials as a strong candidate 
for markup and for being the first bill that this Committee 
gets passed by the House.
    I yield back the balance of my time.
    [The prepared statement of Mr. Miller follows:]
            Prepared Statement of Ranking Member Brad Miller
    I want to thank the Chairman for calling this hearing. When the 
Committee first looked at shortages in rare earths in 2010 we were 
concerned because China had made it plain that they would use their 
monopoly supply position to manipulate markets, capture manufacturing 
jobs and extract excessive profit from a world that was newly 
discovering the critical nature of rare earth elements.
    We wrote a bill that established the Office of Science and 
Technology Policy as the center of an interagency process designed to 
establish a continuing research effort. We wanted to ensure that our 
country and our employers and our consumers could not be held hostage 
by the Chinese government's manipulation of markets. The Department of 
Energy was also an important part of the response with responsibilities 
for research and for producing a new generation of experts who could 
contribute to work in this area.
    That bill, introduced by my then-Vice Chair, Kathy Dahlkemper, was 
marked up in Committee and passed by the House with 332 bipartisan 
votes in support. In this Congress, I have introduced that bill again, 
with minor changes, and I hope that the Committee can take this matter 
up and move it forward again in time for Senate action.
    I am not the only Member with a bill in this Congress or even on 
this Committee. My colleague from Illinois, Mr. Hultgren, also has a 
bill. There are some broad areas of agreement between us. We both put 
DOE at the center of a research effort. His bill is stronger than mine 
in its definition of critical materials and I prefer his language on 
that. However, my bill has some advantages, for example, in its 
assignment of interagency responsibility to OSTP. I strongly believe 
that we could work out a compromise bill on an issue that affects every 
American and does not appear to straddle any of the many partisan fault 
lines in American politics. Surely neither party would allow our 
leading frenemy to have a stranglehold on materials critical to our 
national security and to our economy. I am glad we are having this 
hearing, but I am surprised it has been so long in coming.
    If we don't act, it may not matter in the short run. The Obama 
Administration deserves credit for the quick and effective steps it has 
taken for establishing an interagency planning and coordination 
process. They have also asked the Department of Energy to look 
aggressively at steps it can take to spur research and support emerging 
American supplies of critical materials. I am confident that the 
President, Dr. Holdren, and Secretary Chu are doing all they can in 
this area.
    However, my concern is what happens going forward. Our government 
is sometimes quite good at responding to a sudden crisis. What we need 
is an ability to keep watch on critical materials, anticipate problems 
and create policies that head those off rather than respond to a crisis 
only after it is upon us. I think that both Mr. Hultgren and I agree on 
this, though we structure the authorities for standing watch somewhat 
differently.
    And there is ample evidence of market failure here. The argument 
that the market is working is based on the fact that prices for several 
rare earths have dropped. Of course we have seen prices drop before. In 
the 1990s the prices dropped because the Chinese government was 
controlling its production and setting global prices in such a way as 
to drive competitors out of business. And then the price rose because 
the Chinese government began to exploit its monopoly position to drive 
prices up and use its strangle-hold on supplies to coerce manufacturers 
who needed these resources to set up their manufacturing in China.
    Even if the current price drops were not mainly the result of the 
global recession, there is no reason to think that if we are not smart 
about how we support these industries the Chinese government won't just 
make the same moves all over again. To believe that markets can work, 
when the biggest player in a particular industry is a hybrid Communist-
capitalist state, is to cling to ideology in the face of ample evidence 
that it just ain't so.
    I hope we can all work together to move a bill in this area. I 
would just close by noting that this Committee currently has zero bills 
that have been passed by the House. Zero. None. For this Committee, 
that is unprecedented for the first session of a Congress, at least 
going back to Chairman Roe. I would encourage the Majority to consider 
a bipartisan bill on critical materials as a strong first candidate for 
markup and passage on the floor of the House.

    Chairman Harris. Thank you very much, Mr. Miller, and I 
assure you that in the tradition of the Science Committee that 
we look forward to working with you and the minority on 
crafting a bipartisan deal to deal with this very important 
issue.
    If there are members who wish to submit additional opening 
statements, your statements will be added to the record at this 
point.
    At this time I would like to introduce our witness panel. 
Our first witness today is the Hon. David Sandalow, Assistant 
Secretary for Policy and International Affairs for the 
Department of Energy. Prior to being confirmed as Assistant 
Secretary, he was an Energy and Environment Scholar and a 
Senior Fellow in the Foreign Policy Studies Program of the 
Brookings Institution as well as the Energy and Climate Change 
Working Group Chair at the Clinton Global Initiative.
    Our next witness is Dr. Derek Scissors, Research Fellow at 
the Heritage Foundation. Dr. Scissors is also an Adjunct 
Professor at George Washington University, where he teaches a 
course on the Chinese economy. Before joining Heritage in 
August 2008, Dr. Scissors was an Economist at Intelligence 
Research with a specialty in Chinese economics.
    Our third witness today is Dr. Robert Jaffe, Jane and Otto 
Morningstar Professor of Physics at the Massachusetts Institute 
of Technology. He is a fellow of the American Association for 
the Advancement of Science and the American Physical Society, 
where he chairs the energy and environment subcommittee of the 
APS Panel on Public Affairs. In 2010 to 2011, Professor Jaffe 
chaired a study, ``Energy Critical Elements: Securing Materials 
for Emerging Technologies,'' jointly sponsored by the APS and 
the Materials Research Society.
    Our fourth witness is Dr. Karl Gschneidner, Senior 
Materials Scientist at Ames National Laboratory. He is 
considered the world's foremost authority of rare earth 
science, technology, application and utilization. He has 
published over 488 papers in peer-reviewed journals, holds 15 
patents, and given 303 invited presentations.
    Our final witness today is Mr. Luka Erceg, President and 
CEO of Simbol Materials. Prior to founding Simbol Materials, 
Mr. Erceg worked in the oil and gas industry. He brings 12 
years of transaction advisory experience, predominantly in the 
energy and energy technology sectors.
    Thank you all for appearing before the Subcommittee today. 
As our witnesses should know, spoken testimony is limited to 
five minutes each after which the members of the Committee will 
have five minutes each to ask questions.
    I now recognize our first witness, the Hon. David Sandalow, 
Assistant Secretary for Policy and International Affairs at the 
Department of Energy.

               STATEMENT OF HON. DAVID SANDALOW,

               ASSISTANT SECRETARY FOR POLICY AND

          INTERNATIONAL AFFAIRS, DEPARTMENT OF ENERGY

    Hon. Sandalow. Thank you very much, Mr. Chairman. Thank 
you, Ranking Member Miller and members of the Subcommittee. I 
appreciate the opportunity to testify today. I would like to 
take the opportunity to speak about critical materials and the 
work that the Department of Energy is doing on this topic.
    Earlier this year, I visited the Mountain Pass Mine in 
southern California. I was impressed by the facility and its 
potential to provide a domestic source of rare earth metals. 
According to the mine's owners, the mine will have a production 
capacity of about 19,000 tons of rare earths by the end of 2012 
and 40,000 tons by early 2014 using modern technologies at a 
globally competitive cost. That is an important step in the 
right direction.
    Now, the issue of critical materials is important and needs 
priority attention in the months and years ahead. The 
Department of Energy shares the goal of establishing a stable, 
sustainable and domestic supply of critical minerals, and we 
look forward to discussions with the Congress on ways to 
address this issue as we move forward.
    Last year, the Department of Energy released its first 
Critical Materials Strategy. The report found that four clean 
energy technologies--wind turbines, electric vehicles, 
photovoltaic cells and fluorescent lighting--use materials at 
risk of supply disruptions in the next five years. In the 
report, five rare earth elements--dysprosium, neodymium, 
terbium, europium and yttrium--as well as indium, were assessed 
as most critical in the short term, and for this purpose, 
criticality was a measure that combined importance to the clean 
energy economy and the risk of supply disruption.
    Now, our 2010 Critical Materials Strategy highlighted three 
pillars to address the challenges associated with critical 
materials in the clean energy economy. First, substitutes must 
be developed. Second, recycling, reuse and more efficient use 
can significantly lower global demand. And third, diversified 
global supply chains are essential, and within diversified 
global supply chains, domestic sources are the most important.
    With all three of these approaches, we must consider all 
stages of the supply chain from environmentally sound material 
extraction to purification and processing, the manufacture of 
chemicals and components, and ultimately end uses.
    Now, DOE's research and development with respect to 
critical materials aligns with these three pillars of our 
strategy. In the past year, the department has increased its 
R&D investment in magnet, motor and generator substitutes 
focused on reducing the rare earth usage in these applications.
    In September of this year, the department's Advanced 
Research Projects Agency for Energy, known as ARPA-E, announced 
funding in a 36-month program for 14 early-stage technology 
alternatives that reduce or eliminate the dependence on rare 
earth materials by developing substitutes in two key areas: 
electric vehicle motors and wind-generators. DOE's Vehicle 
Technologies and wind energy programs have also issued relevant 
funding opportunity announcements this year.
    These activities build on DOE's longstanding expertise on 
these topics. For example, our Office of Basic Energy Sciences 
has funded research at Ames Laboratory on the production of 
high-quality rare earth magnets, magnetic technology, synthesis 
technologies and superconductors for many years.
    Now, an important point: R&D is also an excellent route 
toward developing the next generation of human capital and 
technical knowledge required for a sustainable rare earth 
supply chain. To succeed in the global marketplace, we need to 
develop not only our mines but also our minds.
    Developing expertise in these areas depends in part on 
private and public sector research support. The research 
programs supported by DOE and other organizations provide 
valuable opportunities for post-docs, for graduate students, 
for mid-career scientists and more.
    This month, DOE will issue its 2011 Critical Materials 
Strategy. In that report, DOE will update its analysis in light 
of rapidly changing market conditions. DOE will also report on 
the results of our analysis on rare earth elements in petroleum 
refineries and other applications not addressed in last year's 
report. Our 2011 Critical Materials Strategy will include 
updated criticality assessments and market analyses to assist 
in addressing critical materials challenges, and it will also 
include the R&D plan that we have discussed.
    Now, I want to stress that DOE's work is closely 
coordinated with other federal agencies and, as mentioned, the 
White House Office of Science and Technology Policy leads an 
interagency effort on critical materials within the 
Administration. The Administration is currently reviewing H.R. 
2090, and DOE has no comments on the specific content of this 
bill at this time but we share the goal of improving 
assessments and supporting a research agenda for materials 
critical to our future energy economy, and we look forward to 
discussing with Congress ways to address any issues as we move 
forward.
    Thank you.
    [The prepared statement of Mr. Sandalow follows:]
Prepared Statement of The Hon. David Sandalow, Assistant Secretary for 
         Policy and International Affairs, Department Of Energy
    Chairman Harris, Ranking Member Miller, and Members of the 
Subcommittee, thank you for the opportunity to testify today. The 
Administration is currently reviewing H.R. 2090 and has no specific 
comments on it at this time, but I would like to take this opportunity 
to speak about the critical minerals that underpin the transition to a 
clean energy economy and the Department of Energy's (DOE) ongoing work 
on this topic.
    Earlier this year I visited the Mountain Pass Mine in southern 
California. I was impressed by the facility and its potential to 
provide a domestic source of rare earth metals. According to the 
owners, the mine will have a production capacity of about 19,000 tons 
of rare earths by end of 2012 and 40,000 tons by early 2014, using 
modern technologies at a globally competitive cost. That's an important 
step in the right direction.
    The issue of critical minerals is important and needs priority 
attention in the months and years ahead. The Department shares the goal 
of establishing a stable, sustainable and domestic supply of critical 
minerals, and we look forward to discussions with the Congress on ways 
to address this issue as we move forward.

GLOBAL CLEAN ENERGY ECONOMY

    The world is on the cusp of a clean energy revolution. Here in the 
United States, we are making historic investments in clean energy. The 
American Recovery and Reinvestment Act was the largest one-time 
investment in clean energy in our nation's history--more than $90 
billion. At DOE, we're investing $35 billion in Recovery funds in 
electric vehicles; batteries and advanced energy storage; a smarter and 
more reliable electric grid; and wind and solar technologies, among 
many other areas. We are aiming to double our renewable energy 
generation and manufacturing capacities from 2008 to 2012. We are 
working to deploy hundreds of thousands of electric vehicles and 
charging infrastructure to power them, weatherize a million homes, and 
help modernize our grid.
    Other countries are also seizing this opportunity, and the market 
for clean energy technologies is growing rapidly all over the world. 
For example, over $50 billion was invested in China in clean energy 
last year. They are launching programs to deploy electric cars in over 
25 major cities; connecting urban centers with high-speed rail; and 
building huge wind farms, ultrasupercritical advanced coal plants and 
ultra-high-voltage long-distance transmission lines. India has launched 
an ambitious National Solar Mission, with the goal of reaching 20 
gigawatts of installed solar capacity by 2020. And Japan is introducing 
feed-in tariffs to support the scale-up of electricity from renewable 
sources.
    In Europe, strong public policies are driving sustained investments 
in clean energy. Denmark earns more than $10 billion each year in the 
wind energy sector. Germany and Italy are the world's top installers of 
solar photovoltaic panels, accounting for nearly three-quarters of a 
technologies are growing, helping create jobs, promote economic growth 
and fight climate change. These technologies will be a key part of the 
transition to a clean energy future and a pillar of global economic 
growth.

DOE STRATEGY

    Last year, DOE released its first Critical Materials Strategy. The 
report found that four clean energy technologies--wind turbines, 
electric vehicles, photovoltaic cells and fluorescent lighting--use 
materials at risk of supply disruptions in the next five years. In the 
report, five rare earth elements (dysprosium, neodymium, terbium, 
europium and yttrium), as well as indium, were assessed as most 
critical in the short term. For this purpose, ``criticality'' was a 
measure that combined importance to the clean energy economy and the 
risk of supply disruption.
    The 2010 Critical Materials Strategy highlighted three pillars to 
address the challenges associated with critical materials in the clean 
energy economy. First, substitutes must be developed. Research and 
entrepreneurial activity leading to material and technology substitutes 
improves flexibility to meet the material demands of the clean energy 
economy. Second, recycling, reuse and more efficient use can 
significantly lower global demand for newly extracted materials. 
Research into recycling processes coupled with well-designed policies 
will help make recycling economically viable over time. Finally, 
diversified global supply chains are essential. To manage supply risk, 
multiple sources of material are required. This means encouraging other 
nations to expedite alternative supplies and exploring other potential 
sources of material in addition to facilitating environmentally sound 
extraction and processing here in the chain: from environmentally-sound 
material extraction to purification and processing, the manufacture of 
chemicals and components, and ultimately end uses.
    DOE's research and development (R&D) with respect to critical 
materials is aligned to the three pillars of the DOE strategy: 
diversifying supply, developing substitutes and improving recycling. 
R&D is not the primary mechanism to encourage supply diversification. 
However, environmentally sound separation and processing innovations 
will require research and development. R&D plays a more central role in 
developing substitutes, which represents a large share of the current 
critical materials R&D portfolio. R&D challenges can also help to 
improve recycling and reuse. Across the three pillars, there is also 
the need for fundamental research--developing the modeling, measurement 
and characterization capability that is the basis for future 
innovations. Systems level engineering approaches--which would help 
inform R&D priorities apply throughout the supply chain. As DOE is 
ramping up its work in this area, critical materials R&D is integrated 
with other research objectives that are focused on clean-energy 
technologies or fundamentals. DOE's R&D plan is informing an 
interagency R&D roadmapping effort led by OSTP.
    In the past year, the Department has increased its R&D investment 
in magnet, motor and generator substitutes, focused on reducing the 
rare earth usage in these applications. In September of this year, the 
Department's Advanced Research Projects Agency--Energy (ARPA-E) 
announced funding in a 36-month program for 14 early-stage technology 
alternatives that reduce or eliminate the dependence on rare earth 
materials by developing substitutes in two Energy Programs have also 
issued relevant Funding Opportunity Announcements this year.
    In batteries and photovoltaic materials, DOE has historically 
supported broad technology portfolios including those that incorporate 
abundant materials. Investments in these core competency areas have 
continued. This diversity of materials makes over-reliance on 
particular materials less likely.
    Moving forward, additional R&D opportunities are present in: 
separations and processing; substitution for critical materials in 
phosphors for lighting; and recycling. DOE is already taking the first 
steps in this direction. The FY 2012 DOE Small Business Innovation 
Research (SBIR) solicitation has several topics relevant to Rare Earth 
Elements (REE)--specifically improving separation and processing. 
Anticipated R&D could support the first steps toward improving 
separation and processing technologies.
    These activities build on DOE's longstanding expertise on these 
topics. For example, the Office of Basic Energy Sciences (BES) has 
funded research at Ames Laboratory on the production of high quality 
rare earth magnets, magnetic technologies, synthesis technologies and 
superconductors for a number of years. The Office of Energy Efficiency 
and Renewable Energy (EERE) has funded several projects at Ames 
Laboratory and Oak Ridge National Laboratory addressing alternate 
magnet and motor designs.
    R&D is also an excellent route toward developing the next 
generation of human capital and technical knowledge required for a 
sustainable rare earth supply chain. Developing expertise in these 
areas depends, in part, on private-and public-sector research support. 
The research programs supported by DOE and other organizations provide 
valuable opportunities for post-doctoral researchers and graduate 
students. They can also incentivize mid-career scientists in related 
disciplines to develop research programs which are relevant to critical 
materials. R&D funding not only supports innovation in clean energy 
technology, it also enables the development of the next generation of 
scientists and engineers.
    DOE will issue its 2011 Critical Materials Strategy this month. In 
that report, DOE will update its analysis in light of rapidly-changing 
market conditions. DOE will also report on the results of our analysis 
on rare earth elements in petroleum refineries and other applications 
not addressed in last year's report. The 2011 Critical Materials 
Strategy will include updated criticality assessments and market 
analyses to assist in addressing critical materials challenges. It will 
also include the R&D plan described above.
    In support of this year's analysis, DOE issued a Request for 
Information that focused on critical material content of certain 
technologies, supply chains, research, education and workforce 
training, emerging technologies, recycling opportunities, and mine 
permitting. We received nearly 500 pages of responses from 30 
organizations, including manufacturers, miners, universities, and 
national laboratories. Many organizations shared proprietary data on 
material usage that will help us develop a clearer picture of current 
and future market conditions.
    Managing supply chain risks is by no means simple. At DOE, we focus 
on the research and development angle. From our perspective, we must 
think broadly about addressing the supply chain in our R&D investments, 
from extraction of materials through product manufacture and eventual 
recycling. It is also important to think about multiple technology 
options, rather than picking winners and losers. We work with other 
Federal agencies to address other issues, such as trade, labor and 
workforce, and environmental impacts. The White House Office of Science 
and Technology Policy has been convening an interagency effort on 
critical materials and their supply chains.
    The Administration is currently reviewing H.R. 2090, and the DOE 
has no comments on the specific content of this bill at this time. We 
share the goal of improving assessments and supporting a research 
agenda for materials critical to our future energy economy. We look 
forward to discussions with the Congress on ways to address any issues 
as we move forward.

CONCLUSION

    One lesson we have learned through experience is that supply 
constraints aren't static. As a society, we have dealt with these types 
of issues before, mainly through smart policy and R&D investments that 
reinforced efficient market mechanisms. We can and will do so again. 
Strategies for addressing shortages of strategic resources are 
available, if we act wisely. Not every one of these strategies will 
work every time. But taken together, they offer a set of approaches we 
should consider, as appropriate, whenever potential shortages of 
natural resources loom on the horizon.
    So in conclusion, there's no reason to panic but every reason to be 
smart and serious as we plan for growing global demand for products 
that contain critical minerals. The United States intends to be a world 
leader in clean energy technologies. Toward that end, we are shaping 
the policies and approaches to help prevent disruptions in supply of 
the materials needed for those technologies. This will involve careful 
and collaborative policy development. We will rely on the creative 
genius and entrepreneurial ingenuity of the business community to meet 
an emerging market demand in a competitive fashion. With focused 
attention, working together we can meet these challenges.

    Chairman Harris. Thank you very much.
    I now recognize our second witness, Dr. Derek Scissors from 
the Heritage Foundation.

  STATEMENT OF DR. DEREK SCISSORS, RESEARCH FELLOW, HERITAGE 
                           FOUNDATION

    Dr. Scissors. Thank you, Mr. Chairman, and thanks to the 
Committee for this opportunity. I want to especially thank the 
ranking member, Mr. Miller, because I am now going to skip my 
whole introduction and toss out my presentation because he has 
quite correctly gone to what for me is the heart of the matter, 
which is how this market works. Congressman Miller and I have 
points of agreement, and we have points of sharp disagreement, 
and I think it would be useful for the Committee to hear those.
    The points of agreement--the Congressman is absolutely 
right that short-term price movements are not what we should be 
looking at. Prices are going up, prices are going down. That 
should not be driving our decision making. This is a long-term 
issue. I would actually extend that and say that government 
intervention on the basis of short-term price movements is also 
a terrible idea. So when the Committee hears about how prices 
are spiking and we must do something, that is not a good 
argument, just like when prices are dropping, it is not like, 
``okay, everything is fine, we don't have to do anything 
anymore.'' That is not what we should be evaluating.
    I have completely thrown out my presentation, so pardon me 
for winging it here, but it is the ranking member's fault for 
jumping ahead in where I was going to go.
    To get to his point, it is not that we trust the Chinese. I 
am going to talk a little bit about Chinese behavior in a 
second. It is that markets work on their own when new firms can 
enter. We are not trusting the Chinese, we are trusting the new 
firms that have come in in response to higher prices. We are 
not trusting the Chinese, we are trusting market clearing. 
Higher prices cause demand conservation. They cause 
substitution of other elements. They cause expansion of 
existing production. That is what we are trusting.
    Mr. Miller is exactly right about Chinese predatory 
behavior. The market was created in a sense, not created, but 
it was radically altered by Chinese undercutting prices, making 
everything rare earth cheaper, but simultaneously driving 
everyone out of the market. They then discovered right after 
they drove everyone out of the market that there is an 
ecological problem here and so we can't export as much as we 
used to. This is just predation. There is no question about it. 
So there is no disagreement that the Chinese are predatory 
pricers in rare earths. The disagreement is, their market power 
is temporary. The chairman quoted 97 percent of rare earth 
production being Chinese. That number is probably closer to 90 
now and it is dropping, and it is dropping for two reasons. 
One, the Chinese are restricting their own output because they 
want to charge everyone more money but also we are slowly 
getting more production from everywhere else, and the market is 
anticipating more production so that is what is driving prices 
down.
    On fundamentals, we have an issue here of where rare earths 
and ECEs are located. It is a rapidly changing market. You have 
to do a lot of survey work, which is exactly something Congress 
should mandate. But we know that Chinese holdings of rare earth 
deposits are far below their production level. That is 
unsustainable. You can't produce more than you have for an 
extended period. So we know the Chinese market position is 
unsustainable. We know it is going to erode just on basics.
    Now, that is the situation in the market. What should the 
government do? I am going to start with what the government 
should not do. The market is working fine. We are getting 
substitute and demand. We are getting expansion and supply, 
exactly what we want. That makes subsidies, government 
interference immediately a bad idea. Loan guarantees are a bad 
idea too. Loan guarantees cost the government less. That is 
important. But the point is, they alter market conditions. They 
bias the technology path. They pick out firms that shouldn't be 
picked out except by competition. So the difference between 
subsidies and loan guarantees is cost, which matters, but the 
interference in the market is the same.
    And now I am going to play my role as a Heritage Foundation 
market fundamentalist and say that even applied research can be 
subsidy. If applied research picks out a particular firm or 
picks out a particular technology, it is acting as a subsidy. 
That compromises technological dynamism and it compromises 
efficiency.
    So what should the government do? First, there is basic 
research that the private sector cannot do at present. The 
government should support that. Second, and I think all the 
bills do this and they are quite correct, it is a crucial role 
for the government to provide information, especially in a 
rapidly changing market where some of the information is not 
available to private firms. Private firms can't just go survey 
global rare earth and ECE deposits around the world. The U.S. 
Government has to do this, and here is another point where Mr. 
Miller and I agree. This is a long-term process. We don't need 
one survey. We need a long-term process where the government is 
providing needed information to market participants in a 
reliable and consistent fashion down the road so they know what 
is coming and they can operate accordingly. And the third thing 
the government might do is beyond my area of expertise but I 
will just throw it out there. Because this market is working 
properly, extending the market will bring a commercial return. 
That involves opening federal land to ECE exploration. I know 
there are many factors. I am not arguing for that. I am just 
saying it will bring a commercial return to do so, and the 
Committee will have to decide on those other factors.
    Finally, I have a closing point to make. Thirty-five years 
ago, the supply of strategic minerals was threatened by 
conflict in southern Africa and apparent monopolization by a 
non-market economy, the Soviet Union. The private sector 
created rare earths as the response. When you are touting the 
importance of rare earths, you are touting the importance of 
private sector innovation. Now, as then, the market worked and 
we should let it work again. I am sorry for going ten seconds 
over.
    [The prepared statement of Dr. Scissors follows:]
  Prepared Statement of Dr. Derek Scissors, Research Fellow, Heritage 
                               Foundation

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman Harris. That is okay. Thank you very, very much.
    I now recognize our third witnesses, Dr. Robert Jaffe of 
MIT.

          DR. ROBERT JAFFE, JANE AND OTTO MORNINGSTAR

                     PROFESSOR OF PHYSICS,

             MASSACHUSETTS INSTITUTE OF TECHNOLOGY

    Dr. Jaffe. Mr. Chairman and members of the Committee, thank 
you for the opportunity to testify today.
    As Mr. Harris mentioned, I recently chaired a study of 
energy-critical elements sponsored by the American Physical 
Society and the Material Research Society. Today I will 
highlight a few of our key findings and recommendations.
    Despite calls to the contrary, the sky is not falling. We 
will not run out of any chemical element any time soon. 
Nevertheless, the problem of availability of certain key 
elements is serious and very real. While rare earths are the 
flavor of the month, or perhaps the flavor of last month, a 
host of other elements are poised to present problems in the 
future. We are in this for the long term.
    If appropriate steps aren't taken, we may face disruptive 
short-term constraints on supply of some elements that are not 
presently mined or refined or traded in large quantities but 
are critical to the deployment of potentially game-changing 
technologies. Casualties might range from important petroleum 
refinery catalysts to state-of-the-art wind turbines. 
Constraints on the availability of ECEs would limit the 
competitiveness of both U.S. industries and the domestic 
scientific enterprise, disrupting both innovation and 
investment.
    I describe five types of constraints in my written 
testimony. Let me mention just two now. First are geopolitical 
constraints. Some ECEs exist only in one or two large or rich 
deposits in the world which are not in the United States. In 
other cases, economic or political forces have allowed one or 
few countries with particularly rich or abundant ECE resources 
to manipulate the market, as we have just heard.
    A second constraint is the risk associated with joint 
production. Some ECEs are only recovered as byproducts in 
extraction of more common metals. While they are in low demand, 
these ECEs may be abnormally cheap only to become far more 
expensive when byproduct production is exhausted.
    The study I chaired recommends a comprehensive approach to 
the ECE problem based on information, research and recycling. 
It is our view that with careful stewardship by the government 
coupled with the imagination of fundamental research and the 
initiative of U.S. Government, the problem of ECEs can be 
managed for the foreseeable future.
    In developing our recommendations, we took a lesson from 
industry. General Electric had for many years tracked the 
market for an exceptionally rare metal, rhenium, which is 
critical to its advanced turbines in modern natural gas-fired 
power plants. In 2005, GE predicted a demand for rhenium that 
would soon outpace worldwide supply. Instead of stockpiling, GE 
reduced its immediate need for new rhenium by a wide-ranging 
recycling program and a multi-year research program aimed at 
developing an alternative alloy. By 2010, they had found, 
tested and certified several low-rhenium alloys. Meanwhile, the 
price of rhenium had jumped tenfold to over $10,000 a kilogram. 
GE succeeded, but smaller U.S. companies, universities and 
national labs, one, don't have the information-gathering 
network needed to recognize an impending supply disruption; 
two, can't afford to carry out substitutional research; and 
three, can't engage in extensive recycling. Consequently, in 
general, we recommend the following:
    First, the government should gather, analyze, and 
disseminate information on ECEs across the lifecycle supply 
chain including resources, production, use, trade, disposal and 
recycling. Accurate information about availability will allow 
scientists, entrepreneurs and investors to see beyond the price 
spikes and plan for the future.
    Second, the government should promote fundamental research 
aimed at the twin goals of increasing supplies and decreasing 
our dependence on ECEs. It is especially important to support 
fundamental research on earth-abundant substitutes for ECEs.
    Third, cell phones and iPods end up discarded at the back 
of sock drawers, yet often they contain ECEs in concentrations 
that exceed all but the richest ores. We need to develop 
technology and awareness to promote recycling of these elements 
that are often and truly more precious than gold. Here again, 
both government and industry have a role to play. I believe our 
report's recommendations can be implemented with a budget-
limited approach that respects the distinction between 
activities that belong in the private sector and those that 
fall to government.
    You have asked me to comment on the Energy Critical 
Elements Advancement Act of 2011 introduced by Representative 
Hultgren. The Hultgren bill, which shares many features with 
Mr. Miller's bill, has provisions on the full triad that we 
recommend: information, research and recycling. It also 
reflects our view that these important actions can be addressed 
in a budget-limited or, in some cases, a budget-neutral manner. 
The Hultgren bill recognizes the need for careful stewardship 
by the government without unnecessary overreach. It couples the 
imagination of fundamental research and the initiative of U.S. 
industry so that the problem of ECE availability can be managed 
for the foreseeable future.
    Thank you very much for the opportunity to testify, and 
sorry for running over.
    [The prepared statement of Mr. Jaffe follows:]
   Prepared Statement of Dr. Robert Jaffe, Jane and Otto Morningstar 
      Professor of Physics, Massachusetts Institute of Technology

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman Harris. No, thank you, Dr. Jaffe.
    I now recognize our fourth witness, Dr. Karl Gschneidner of 
the Ames National Laboratory.

STATEMENT OF DR. KARL GSCHNEIDNER, SENIOR MATERIALS SCIENTIST, 
                    AMES NATIONAL LABORATORY

    Dr. Gschneidner. Thank you very much for giving me the 
opportunity to speak this morning in testimony. I also want to 
thank the Hon. Mr. Harris and the Hon. Mr. Miller for the very 
nice introduction to my talk. I can probably cut out half of 
it, but I won't. And also, the other speakers were a very nice 
preface.
    The rare earth elements comprising scandium, yttrium and 
the 15 lanthanides are vitally critical to both our military 
and energy securities. In the military sector, all of our 
weapons systems are especially dependent on rare earths, and 
permanent magnets, which are utilized in electric motors, 
computers, guidance systems, etc., sensors, capacitors, 
resistors, phosphors for optical displays, lasers, aircraft 
engines, communication devices such as filters, tuners, phase 
shifters, radar antenna and optical devices, camera lenses and 
fiber.
    In the energy sector, we are especially dependent on rare 
earths in permanent magnets for electric motors, cars, trucks, 
wind turbines, nickel-metal-hydride batteries, petroleum 
refining catalysts, fluorescent and LED lighting, oxygen and 
electrical sensors to control combustion in automobiles, to 
improve fuel consumption and reduce pollution, and high-
temperature alloys for turbines for generating electricity.
    The Ames Laboratory has a long tradition of research on 
rare earth-related elements going back to World War II when 
Ames Laboratory developed a low-cost process for preparing 
uranium metal for the first atomic nuclear fusion reactor in 
Chicago. Subsequently, they developed the ion exchange process 
for separating and purifying the rare earth elements which is 
still utilized today to produce the highest purity individual 
elements. They also contributed together with other Department 
of Energy laboratories to commercialize the liquid-liquid 
solvent extraction process, which is used today for separating 
the rare earths on a large scale.
    From 1950 through the 1970s, the Ames Laboratory scientists 
prepared high-purity metals and studied the magnetic, physical 
and chemical properties, discovered many new compounds and 
measured their fundamental properties. Much of this new 
information contributed to the eventual discovery of the 
lanthanum nickel hydrogen battery, the giant magnetorestrictive 
material, Terfenol-D, and the samarium-cobalt neodymium-iron 
permanent magnets.
    Currently, most of the research on rare earth carried out 
at the Ames Laboratory is funded by the U.S. Department of 
Energy's Office of Basic Energy Sciences, BES, some lesser 
support from the Energy Efficiency and Renewable Energy, EERE, 
and Advanced Research Projects Agency-Energy, ARPA-E. Other 
research is supported by CRADAs and work for industry.
    The BES research involves both experimental and theoretical 
studies on novel materials, which is the giant magnetocaloric 
effect, colossal magnetoresistance and giant magnetorestriction 
and also correlated electron systems. The ARPA-E and the EERE 
research includes studies on the anisotropic sintered permanent 
magnets for automobile traction motors. Rare earth CRADA and 
work for industry efforts include magnetic refrigeration 
materials, recycling and development of low-cost processes for 
making metal.
    Most of the critical needs in the future research for us 
are: One, improving high-temperature magnetic strength of the 
neodymium iron-boron permanent magnets. Two, new host materials 
for phosphors and reduced amounts of europium and terbium 
activators for most efficient lighting. Three, designing of 
recycling processes recovering the metallic elements without 
converting them to chemicals and then back to metals and 
improving recovery techniques for rare earth phosphors. Four, 
improve the effectiveness of rare earths and stabilize zeolite 
cracking catalysts and designing new catalysts and catalytic 
processes for bond cleavage and bond formation of hydrocarbons. 
And five, a more vigorous investment in new advanced energy 
technology including fuel cells and magnetic refrigeration.
    These goals cannot be accomplished without replacing the 
rare earth intellectual capital. It is imperative to educate 
and train the next generation of engineers, scientists and 
technical managers. This can be best accomplished through the 
National Research Center for Rare Earths and Energy 
established. Finally, our country will fail if we do not 
rebuild the rare earth industry especially beyond mining.
    Thank you very much for giving me the opportunity to 
testify on this vitally critical topic.
    [The prepared statement of Dr. Gschneidner follows:]
Prepared Statement of Dr. Karl Gschneidner, Senior Materials Scientist, 
                        Ames National Laboratory

Introduction

    The rare earth elements, comprising of scandium (Sc), yttrium (Y), 
and the lanthanides [the most important ones regarding this theme are: 
lanthanum (La), cerium (Ce), praseodymium (Pr), neodymium (Nd), 
samarium (Sm), europium (Eu), gadolinium (Gd), terbium (Tb), dysprosium 
(Dy), erbium (Er), ytterbium (Yb), and lutetium (Lu)], are vitally 
critical to both our military and energy securities.
    In the military sector, all of our weapon systems are especially 
dependent on: Nd, Pr, Sm and Dy in permanent magnets which are utilized 
in electric motors, computers, guidance systems, etc.; Y, Ce, and Nd in 
sensors, electronic materials, e.g. capacitors, resistors; Y, La, Nd, 
Eu, Tb, and Dy in phosphors for optical displays and lasers, etc.; Y 
and Gd in aircraft engines and turbines; Y and Gd in communication 
devices such as filters, tuners, phase shifters, radar antennas; and Y, 
La, Gd, and Lu in optical devices, camera lenses, fiber optics.
    In the energy sector: Nd, Pr, Sm, and Dy are used in permanent 
magnets for electric motors (cars, trucks, wind turbines); La and 
mischmetal in nickel-metal-hydride batteries; Ce, La, and mixed rare 
earths in petroleum refining catalysts; Y, Ce, Eu, Tb, and Dy in 
fluorescent and LED lighting; Y, Ce, and Nd in oxygen and electrical 
sensors to control combustion in automobiles to improve the 
efficiencies of fuel consumption and reduce the environmental 
pollution; Y, La, and Ce in high temperature alloys for turbines for 
generating electricity; and Gd as a nuclear reactor moderator.

Rare Earth Research at the Ames Laboratory

                                History

    The Ames Laboratory has a long tradition of research on the rare 
earth related elements, going back to World War II when the Ames 
Laboratory developed a low cost process for preparing uranium (U) metal 
for the first atomic nuclear fusion reactor in Chicago. The process is 
still being used today. The Ames Laboratory also supplied two tons of U 
(1/3 of the fuel needed) for the reactor to be self sustaining. 
Subsequently scientists at the Ames Laboratory developed the ion 
exchange process for separating and purifying the rare earth elements, 
which is still utilized today to produce the highest purity individual 
elements. They also contributed together with other Department of 
Energy laboratories to the commercialization of the liquid-liquid 
solvent extraction processes which are used today for separating the 
rare earth elements on a large scale; tens of thousands of tons per 
year per mine, or about 140,000 tons in 2010 worldwide, 90% coming from 
China. In the late 1940s to early 1950s Ames Laboratory scientists 
developed processes for making pure rare earths by the metallothermic 
process, and during the 1950s through 1970s developed new processes for 
purifying the metals from 99 to 99.99 wt.% pure by casting, zoning, 
sublimination, distillation and solid state electrolysis methods. 
During this same period they studied the fundamental properties of the 
elementary metals--magnetic, electrical, thermal, elastic, mechanical, 
chemical, etc.--and prepared and discovered many new intermetallic, 
inorganic and organic compounds. Much of this new information 
contributed to the eventual discovery of the electrical properties of 
the LaNi5Hx battery electrode; the magnetic behaviors of Terfenol-D 
(Tb0.3Dy0.7Fe1.9) a giant magnetostrictive material; the magnetically 
very strong Sm2Co17, SmCo5, 
Nd2Fe14B and Pr2Fe14B 
permanent magnets; and the electrical conductivity of yttria-stabilized 
zirconia (Zr1-xYx)O2 electrical 
sensors. One of the co-discoverers of the Nd2Fe14B permanent magnets 
carried out his Ph.D. graduate research at the Ames Laboratory.
    Analytical chemists devised new schemes, techniques and procedures 
for analyzing the purity of individual rare earth elements for other 
rare earths, and also non-rare earth impurities. Modifications of these 
methods are still utilized today.

                      Current Research Activities

    Most of the research on rare earth carried out at the Ames 
Laboratory is funded by the U.S. Department of Energy through the 
Office of Basic Energy Sciences (BES), with some lesser support from 
Energy Efficiency and Renewable Energy (EERE), and Advanced Research 
Projects Agency-Energy (ARPA-E). Other research is supported by CRADAs 
(Cooperative Research and Development Agreements) and work for 
industry.
    The BES research includes several projects (7) and these are as 
follows. (1) Extraordinary Responsive Magnetic Rare Earth Materials, 
such as R5(Si1-xGex)4, 
RAl2, and RCo2, which exhibit unusual magnetic, 
electric, thermal, and elastic behaviors when stimulated by external 
changes of temperature, applied magnetic fields, or pressure. These 
include the giant magnetocaloric effect, colossal magnetoresistance and 
giant magnetostriction (Pecharsky and Gschneidner). (2) Novel Materials 
Preparation and Processing Methodologies research includes 
quasicrystals (Cd84Yb16), RFeAsO1-x 
superconductors (polycrystalline and single crystals), reactive metal 
crystal growth (GdNi)(Lograsso, McCallum, Anderson and Jones). (3) Work 
in the Innovative and Complex Metal-Rich Materials Project has a small 
rare earth component, which includes (R,M)-M'X giant multiply 
endohedral clusters (Miller and Corbett). (4) Complex States, Emergent 
Phenomena and Superconductivity in Intermetallic and Metal-like 
Compounds research involves correlated electron systems (Yb-based 
materials), superconductors (RNi2B2C, RFeAsO), 
and ferromagnets (Nd2Fe14B, CeAgSb2) 
(Canfield and Prozorov). (5) Research in the Correlations and 
Competition between Lattice, Electrons and Magnetism Project involves 
X-ray and neutron scattering of various materials including 
Gd5(Si2-xGex)4, 
RNi2B2C, GdBiPt, and RFeAsO (McQueeney, Kreyssig, 
Goldman). (6) The Magnetic Materials Discovery research on 
LaNi2Ge2 and LaNi2P2 
mixtures, RV4O8, and EuM2Sb2 
(M = Pd, Rh) was carried out in this Project by David Johnston. (7) In 
addition to these experimental efforts there is a considerable amount 
of theoretical work going on overlapping several of the condensed 
matter physics research projects tying this research together (Harmon, 
Duane Johnson).
    The EERE-Vehicle Technologies research project includes studies of 
anisotropic bonded and sintered R2Fe14B 
(R=Nd+Y+Dy) permanent magnets with high temperature stability for 
automotive traction motors with little or no Dy content. Also this 
research was expanded to include scientists and engineers from 
University of Nebraska-Lincoln, University of Maryland, Brown 
University, Oak Ridge National Laboratory, and Arnold Magnetic 
Technologies to enable a fully coupled theoretical and experimental 
effort to develop non-rare-earth magnets for advanced traction motors 
(Anderson, McCallum, Kramer).
    There is one funded ARPA-E project which involves developing high 
energy permanent magnets for hybrid vehicles and alternative energy. 
The lead organization for this effort is the University of Delaware 
(G.C. Hadjipanayis). The Ames Laboratory's research is headed by 
McCallum.
    A new ARPA-E project on Ce-based permanent magnets for automotive 
traction motors was funded to begin in FY2012. The Ames Laboratory is 
the lead organization and there are three industrial partners--Molycorp 
Minerals, General Motors and Nova Torque. McCallum is the lead project 
manager and is joined by his Ames Laboratory colleagues Antropov, 
Gschneidner, Johnson, Kramer and Pecharsky.
    CRADA rare earth related research is concerned with recycling 
magnetic materials and developing new low cost processes for making 
rare earth metals for various industrial uses. A work for other project 
involves research on magnetic refrigerant materials.

                   Materials Preparation Center (MPC)

    The MPC was established in the 1970s to provide high purity rare 
earth metals, intermetallic compounds, inorganic compounds, alloys, 
etc. to research scientists, not only at the Ames Laboratory but also 
all over the world to promote and assist scientific investigations, 
both basic and applied; and under certain conditions to assist the 
commercialization of certain materials. In addition to supplying 
polycrystalline materials, they also grow single crystals and 
directional preferred oriented polycrystals of many of these materials, 
and also make very high purity rare earth and related metals by 
advanced metallurgical processing techniques. The MPC is a world-
renowned national resource treasure. The MPC works on a cost recovery 
basis.

Future Research and Other Needs

(not just the Ames Laboratory but the entire USA)
Magnets - Nd2Fe14B

      Reduce the amount of Dy
      Improve the high temperature magnetic strength
      Improve the processing technology
      Lower cost Nd, Pr metals
      Reduce the rare earth content
      Non-rare earth magnets - new, improved existing ones

Phosphors

      Improved, lower cost, more efficient separation 
technologies
      New host materials - more efficient light emitting 
phosphors
      Reduce amount of activators (Eu, Tb) for same lumen 
output
      Development of up-conversion phosphors

Production and Separation

      New improved extractants and complexing reagents
      Design of better separation techniques, and/or equipment
      New advanced chemistries - combinational and biometric

Catalysts

      Improve the effectiveness of the rare earths in 
stabilizing the zeolite cracking catalysts
      New catalysts and catalytic processes - for bond-cleavage 
and for bond-formation of hydrocarbons
      New diesel exhaust catalysts

Recycling

      Design processes for recovering the metallic materials 
and placing them directly in production schemes as metallic materials 
without converting them to chemicals (oxides or halides), separating 
the rare earths, then reducing them to the metals and finally alloying; 
especially important for magnets, battery and metallic alloying agents.
      Better recovery techniques for rare earth phosphors from 
CFC (compact fluorescent lamps), long tubes, color TVs and monitors, 
color display units
      Design phosphor applications for reusing recycled, but 
unseparated rare earth phosphors
      Recovery of rare earths from cracking catalysts, 
especially the heavy lanthanides Tb and Dy
      Develop value-based lifecycle models

Sustainability

      Improve manufacturing efficiency--reduce waste.
      Design end-of-life products to easily recover the rare 
earth materials
      Develop green chemistry and environmentally friendly 
processing technologies

New Advanced Energy Technologies

      Fuel cells
      Magnetic refrigeration

Rare-earth Information Center (RIC)

      Re-establish RIC to help promote rare earth research and 
technology, and commercialization of these elements via the RIC News 
and RIC Insight, respectively, the quarterly and monthly RIC 
newsletters; and answering information inquiries.

Rebuilding the Rare-Earth Industry Beyond Mining

      Loan guarantees for small mining companies, producers of 
intermediate products (metals, magnets, phosphors, catalysts, etc.) and 
OEMs (Original Equipment Manufacturers) who manufacture hard drives, 
electric motors, cell phones, i-pods, CFLs, wind turbines, sensors, 
etc.
      Tax incentives for same.

Replacing Rare Earth Intellectual Capital - It's Imperative to Educate 
and Train the Next Generation of Engineers, Scientists and Technical 
Business Managers

      Requires 60 to 110 Ph.D., M.S., and B.S. degree students 
per year for the next ten years
      Promote rare earth courses at educational institutions--
via distance learning; semester long courses, short courses
      Research projects funded by NSF, DOE, DoD, NIST
      National scholarships
      Establish a National Research Center of Rare Earths and 
Energy
    Chairman Harris. Thank you very much.
    I now recognize our final witness, Mr. Luka Erceg of Simbol 
Materials.

    STATEMENT OF MR. LUKA ERCEG, PRESIDENT AND CEO, SIMBOL 
                           MATERIALS

    Mr. Erceg. Good morning, Chairman Harris, Ranking Member 
Miller and members of the Subcommittee. Thank you for the 
opportunity to testify today regarding the important 
legislation before you. I would also like to thank our 
Congressman, Mr. McNerney, for his support and leadership on 
these important issues.
    My name is Luka Erceg and I am the President and CEO of 
Simbol Materials, a California-based producer of critical 
materials. It is exciting that this Committee has taken up 
energy-critical materials, broadening the discussion to more 
than just rare earth elements. Critical materials are the 
backbone to U.S. innovation, supporting job creation and 
competitiveness in clean technology, defense, agriculture and 
many other industry segments.
    Simbol is commercializing an innovative and sustainable 
process to produce the critical materials lithium, manganese 
and zinc domestically that are being currently produced from a 
demonstration plant in California. We are permitting our first 
facility, and when complete, we will, one, be the only U.S. 
producer of certain manganese compounds, and two, we will 
double U.S. lithium production in 2013. This will continue to 
create high-value jobs.
    We believe the U.S. Government can drive investment and job 
creation by establishing a clear policy for critical materials 
through a well-coordinated and consistent effort. Without 
prescription, the definition of critical materials should be 
based on strategic importance and domestic production that 
supports policy objectives, ensuring consistency across all 
federal agencies. Definitions of critical materials should 
recognize the elemental, compound and derivative forms as 
appropriate.
    Lithium has been recognized as critical in the proposed 
legislation. Its compounds and derivatives are a critical 
component in advanced batteries for electric vehicles and other 
energy storage applications. Due to a lack of domestic 
production, the U.S. imports approximately 76 percent of its 
lithium needs.
    Manganese, however, has not been recognized as critical in 
the proposed legislation, while it too supports strategic 
energy and defense priorities, and the lack of U.S.-based 
production is substantial. Manganese metal is essential for 
producing specialty steels for defense applications and 
manganese dioxide is critical to advanced batteries for 
electric vehicles. The U.S. is 100 percent reliant on foreign 
sources of manganese and 95 percent of the world's manganese 
metal production comes from China. Two federal entities have 
demonstrated the importance of manganese to U.S. policy 
initiatives. The Defense Logistics Agency has classified 
manganese metal as a critical material and the Department of 
Commerce has protected domestic manganese dioxide production 
against unfair Chinese and Australian trading practices.
    The preceding illustrates that without a clear definition, 
a critical element such as manganese can be inadvertently 
overlooked. This demonstrates the need for clarity and policies 
and definitions of critical materials across the U.S. 
Government. Critical materials should not be viewed through 
only an end-use lens. Critical materials themselves are an 
important industry. The interagency process led by OSTP has led 
to a greater focus on the whole of critical materials but work 
remains and a whole of government approach is required.
    Underlying a consistent policy for critical materials is 
federal support for R&D, which is a powerful driver for private 
investment into this important industry. Federal support in R&D 
helps to de-risk new technologies coupled with commercial 
sector investments that send loud market signals and encourage 
follow-on investing in areas of policy interest. These signals 
lead to job creation. For example, in 2009, the DOE's 
Geothermal Technologies Program announced a $3 million grant to 
Simbol to demonstrate its processes, building on our 
relationship with the Lawrence Livermore National Laboratory. 
Following the grant announcement, Simbol raised a further $35 
million in capital prior to ever receiving the first federal 
grant dollar. The government's validation of Simbol sent a 
clear signal to the market that stimulated commercial 
investments 14 times the grant itself. With this support, we 
have grown our workforce from 16 to 62 and will reach 80 or 
more by yearend 2012, and we will continue job creation through 
further expansion.
    Small companies are the economic growth engine of America, 
and as such, grant dollars and R&D support should be targeted 
to small, innovative and disruptive companies, creating greater 
leverage for job creation than through support of larger 
corporations. When a market does not exist, government funding 
can encourage the development of one. R&D also creates 
opportunities for universities to train the next generation of 
scientists and engineers needed to reduce the six to nine 
months we are experiencing in trying to find qualified 
candidates. The lack of a domestic critical materials supply 
chain and industry has resulted in the erosion of our talent 
pool and the departure and decline of important industries to 
countries such as but not limited to China. Supporting critical 
materials closes the loop on education, R&D and 
commercialization in this important area, and we hope that our 
testimony will help you improve upon the important legislation 
before you.
    Thank you for the opportunity to testify, and I look 
forward to your questions.
    [The prepared statement of Mr. Erceg follows:]
    Prepared Statement of Mr. Luka Erceg, President and CEO, Simbol 
                               Materials
    Chairman Harris, Ranking Member Miller, and Members of the 
Subcommittee, my name is Luka Erceg, and I am the President and CEO of 
Simbol Materials. Thank you for the opportunity to testify today about 
research needs and priorities related to critical materials.
    Simbol is commercializing innovative, sustainable processes for the 
domestic production of lithium (Li), manganese (Mn) and zinc (Zn). We 
currently operate a demonstration plant in the Salton Sea region of 
California, where we co-produce minerals from geothermal brines at an 
existing geothermal power plant. Following power production, we 
``borrow'' the brine for about 90 minutes to selectively extract the 
targeted minerals. The brine is then re-injected into the ground. This 
process has a smaller environmental footprint and cost profile than any 
other method for producing these materials.
    We anticipate groundbreaking of our initial commercial lithium 
plant in the spring of 2012. Each full-scale lithium facility will 
produce approximately 16,000 tons per year of lithium carbonate 
equivalent, and 19,000 tons per year of manganese metal. Each of 
Simbol's lithium plants will increase global supply by approximately 
10-15% over today's production volumes. There is sufficient capacity in 
the Salton Sea region to construct several facilities.

A domestic supply chain for critical materials will spur domestic 
manufacturing and innovation

    While the development of a domestic supply chain for critical 
materials will reduce the risk of supply disruption and mitigate 
exposure to price spikes, the greatest benefit of developing a domestic 
supply chain is bolstering our nation's competitive position in 
innovative industrial sectors.
    At every point in a supply chain, manufacturing drives innovation. 
As a supply chain lengthens, each step is strengthened through industry 
collaboration--which creates a more competitive overall domestic 
industry. In the case of electric vehicles and grid storage 
applications, critical materials are the cornerstone of the supply 
chain. It is important to realize that production processes to convert 
raw materials to usable products for downstream markets are highly 
technology-intensive. At Simbol, we have approximately 9 PhDs and 4 MS 
degrees on staff (representing about 25% of our current workforce)--all 
with backgrounds in chemical engineering, electrochemistry and 
chemistry. Our growth to date and future hiring is almost exclusively 
in the areas of skilled trades and technical functions. Our scientists 
and engineers are consistently finding innovative ways to improve the 
quality of materials and to develop the next generation of products.
    We believe that further domestic innovation in critical materials 
will drive workforce growth throughout our entire industry. Because 
domestic production of these materials largely ended in the 1970s, 
today it is inordinately difficult to hire individuals with experience 
in Mn and Li processing. In fact, it is taking us up to nine months to 
find qualified candidates for key positions at Simbol. This is a direct 
result of the absence of university programs: no U.S. universities 
offer geothermal energy degrees. While DOE has been making targeted 
investments in university coursework, in order to jump-start 
significant growth in this sector, strong university programs are an 
imperative. We believe that market growth in the production and 
processing of critical materials will lead to increased training of 
students in these fields, and subsequent technology advancements 
through our university system.

Federal research and development funding drives private sector 
investment in critical materials

    We strongly support legislative initiatives to develop research, 
development and deployment activities for critical materials. These 
programs will jump-start the development of a domestic supply chain for 
clean energy, defense and other strategic sectors in the face of 
aggressive policy and financial support for entrenched foreign 
producers.
    The establishment of a new industry is inherently risky, and 
requires a concerted effort by both the public and private sectors. We 
believe that federal support for basic research remains essential to 
advancing America's position in the clean energy economy. The Advanced 
Research Project Agency - Energy (ARPA-E) plays a critical role in 
driving cutting-edge, game-changing technologies. The Department of 
Energy (DOE) and other federal agencies play an important function in 
supporting R&D efforts to develop and demonstrate technologies that 
lower operating costs, allow access to new resources, and improve 
quality and environmental performance.
    Federal R&D support that assists the private sector--including 
small businesses like Simbol Materials--in de-risking innovative 
technologies, when coupled with commercial sector investments, send 
loud signals to the market that encourage follow-on investment. In the 
critical materials space, these federal R&D commitments are power 
drivers of private investment, and directly support the development of 
a competitive domestic supply chain for next generation energy and 
defense technologies.
    For example, in 2009, DOE's Geothermal Technologies Program (GTP) 
announced its intent to award Simbol a $3 million grant to demonstrate 
its processes for the competitive production of lithium, manganese and 
zinc chemicals for energy storage applications. Since being awarded the 
grant, we have grown our workforce from 16 to 62, and will reach 
approximately 80 by the end of next year. We also have leveraged those 
federal funds to raise approximately $43 million in further capital. 
The majority of these funds were committed prior to the actual delivery 
of the first grant dollar, demonstrating the investment signal provided 
by the government's technology validation.

Financing risk remains the greatest barrier to commercialization of 
critical materials production and processing facilities

    While basic R&D support is essential to restoring U.S. leadership 
in mineral production technology, the federal government also has a 
critical role in helping overcome commercialization risk. While Simbol 
has been highly successful in raising private capital, the investment 
required for a full-scale plant is significant. Private investors 
require a demonstrated market for our product, but the reality is 
that--at least here in the U.S.--we are selling into a nascent 
industry. While growth projections for advanced batteries (and 
associated Li and Mn consumption) are high, investors continue to hold 
back, awaiting the emergence of downstream industry consumption for 
electric vehicles and grid storage. Furthermore, the absence of a 
federal strategy for the development of supply chains to support 
priority policy areas causes confusion in the marketplace regarding the 
importance of critical materials.
    Federal support for commercialization will help us bridge this so-
called ``valley of death.'' In the same way that our GTP grant 
attracted an initial round of private capital, we anticipate that 
federal commercialization assistance would stimulate private investment 
for the full-scale production facility. It is important to note that 
mineral production facilities do not qualify for assistance under 
existing commercialization programs. For example, neither the Section 
1703 loan guarantee program nor the Section 48(c) advanced energy 
manufacturing tax credit reaches sufficiently far back in the supply 
chain to support mineral production or processing activities. Current 
legislative proposals would be strengthened by adding provisions to 
expand eligibility.

Absence of policy clarity stunts private investment in critical 
materials.

    The United States does not have a national policy on critical 
materials. Even the R&D investments we are discussing today are not 
explicitly focused on critical materials. Instead, nascent critical 
materials policies and investments are packaged in disparate programs 
and agencies based on end use technology. Let me give you two examples. 
First, Simbol received our DOE grant--not because we are helping build 
a domestic critical materials supply chain--but because we offer 
benefits to geothermal power production. On the other hand, we were 
excluded from consideration for a loan under the DOE Advanced 
Technology Vehicle Manufacturing Program because we could not prove 
that our lithium would be used only for electric vehicle batteries. 
This stove-piped focus on end use technology conceals the important 
critical materials policy efforts being undertaken in different parts 
of the DOE.
    This issue magnifies itself across the federal agencies. Different 
agencies approach critical materials from different end use 
perspectives, often resulting in divergent perspectives on criticality.
    Let me give you an example from Simbol's vantage point. By any 
objective measure, both Li and Mn should be considered ``critical.'' As 
is the case with rare earth metals, this designation is not due to 
scarcity in global supply, but rather due to the lack of U.S. 
production. Li is an essential component of advanced batteries for 
electric vehicle and grid storage applications. The U.S. is 
approximately 76% import dependent on Li, with most global production 
from salt flat evaporation in South America and growing supply in 
China. While some government studies--including the Department of 
Energy's 2010 critical materials strategy--have labeled lithium as 
``critical,'' other assessments have not included it.
    Electrolytic manganese metal (EMM) is a fundamental input for 
specialty steels for defense and commercial applications, and Mn 
dioxide increasingly is emerging as one of the leading metal components 
for electric vehicle battery cathode powders. The U.S. is 100% import 
dependent on foreign sources of manganese ore, as well as electrolytic 
manganese metal--95% of which is produced in China. Signaling U.S. 
concern with foreign production and trade patterns, the U.S. issued 
anti-dumping orders penalizing Chinese and Australian Mn producers. 
Despite this, Mn was not included in DOE's 2010 strategy, although in 
April of this year the Defense Logistics Agency identified it as one of 
the Department of Defense's top ten shortfall materials.
    These examples are not intended to serve as a criticism, but rather 
as a demonstration of the need for clarity across the U.S. government 
in defining what makes a material ``critical.''
    This lack of consistency and policy clarity has stunted private 
sector investment. In the absence of a clear, consistent signal that 
the U.S. government is committed to developing domestic critical 
materials resources, private investors place their money elsewhere. On 
November 21, Reuters reported that Beijing plans to dedicate $1.7 
trillion to ``strategic sectors'' over the next five years. This builds 
on the $500 billion in Chinese public and private investment in lithium 
production since 2000. Similarly, South Korea announced approximately 
$300 million in public dollars for lithium production, and the Japanese 
government has been providing substantial public dollars through 
various loan guarantee and grant programs for lithium and other 
critical materials. In every instance, government involvement has led 
to substantial investment by private industry in the critical materials 
sector.

A coordinated critical materials effort is needed across the Executive 
Branch.

    We recognize and applaud the Obama Administration for taking a 
focused approach to critical materials issues. The interagency working 
group led by the Office of Science and Technology Policy has been 
effective in bringing diverse agencies together to consider these 
issues. Efforts like the ``Materials Genome Initiative'' have placed 
high-level attention on materials science. Important activities are 
taking place at individual agencies, including DOE, where Mr. 
Sandalow's team is doing excellent work in developing and updating a 
critical materials strategy for energy production. But these efforts 
should be coordinated through federal policies and programs that are 
responsive to market conditions and support domestic critical materials 
production regardless of end use.

Critical materials policy recommendations

    We applaud Representative Hultgren and other members of this 
Committee for introducing legislation focused on the development of 
critical materials. Given the urgent need for clear policy signals, and 
the commitment to this issue on both sides of the aisle and the 
Capitol, it is our hope that critical materials legislation can be 
advanced this Congress. As the various proposals continue to move 
through the legislative process, I urge you to consider the following 
policy recommendations:

      Establish whole-of-government critical materials policy: 
Current initiatives are scattered at various agencies and masked within 
programs focused on end-use technologies. It is essential to formalize 
and improve coordination efforts to create a whole-of-government 
critical materials policy agenda.

      Utilize self-classifying definitions: Rather than 
stipulating a list of qualifying materials or delegating broadly to 
federal agencies, we recommend a self-classifying definition, which 
could be based on 1) use of specific materials in industries that 
support strategic or policy priorities and 2) the level of U.S. 
production and processing. Such a definition should apply across the 
entire federal government. This will ensure that the government is not 
picking winners and losers at a given moment in time, but rather 
structuring programs based on the realities of the rapidly changing 
global marketplace. A straightforward, clear definition will 
immediately communicate to the market that designated materials are 
critical to U.S. policy goals. This will rapidly drive private 
investment to strategic federal priorities.

      Invest in materials science going back to the beginning 
of the supply chain. At every point in the supply chain, manufacturing 
drives innovation. Developing a domestic supply chain for critical 
materials will bolster our nation's competitive position in innovative 
and industrial sectors. This also will serve as a force for rebuilding 
our university programs in materials science and engineering, which 
have languished since the 1970s, following the downturn in U.S. 
critical materials production.

      Streamline methods for licensing technology from national 
laboratories. We recognize that there have been a broad set of efforts 
to create a more consistent licensing process for technology 
commercialization from our national laboratories. However, there 
remains substantial variance within the laboratory system. We need to 
advance a more effective process that gets technology out of the labs 
and into the commercial sector, in order to drive technology growth and 
create opportunities for further innovative research.

      Small-dollar government investments in research yield 
significant returns. Small businesses employ approximately 50% of the 
private sector workforce in the U.S., and they are able to move 
technology along the S-curve of innovation faster than other entities. 
In this time of downward pressure on federal budgets, it is essential 
to continue to support the small companies and innovative technologies 
that drive growth throughout our economy. We believe that the federal 
government will be best served by diversifying its investments and 
providing small research grants to a wide variety of promising 
technologies in strategic sectors. This limits the government's 
exposure and enables it to serve as a catalyst for growth industries. 
In Simbol's case, a $3 million federal investment leveraged 
approximately $43 million in private sector financing.

Thank you for the opportunity to testify, and I look forward to your 
questions.

    Chairman Harris. Thank you very much, Mr. Erceg. I want to 
thank the panel for their testimony, reminding members 
Committee rules limit questioning to five minutes, and the 
Chair at this point will open the round of questions. I 
recognize myself for five minutes.
    Mr. Sandalow, your testimony notes that, and I think you 
mentioned that DOE is updating its critical materials strategy, 
I think you said next month, due to ``the rapidly changing 
market,'' and that is kind of the issue. Given how quickly the 
market has reacted to current supply constraints, how would the 
government be best positioned, because, you know, the 
government isn't usually very flexible on how it works, and how 
would it be best positioned to position itself with regards to 
rare earths? Shouldn't its efforts be focused as has been 
suggested on, you know, gathering information, doing only basic 
research, not necessarily applied technology solutions and 
recycling? And is that the direction you think this report is 
going to go or is it going to be more expansive than has been 
suggested, and I think as the bill suggests, that we focus on 
information, basic research and recycling?
    Hon. Sandalow. Well, thank you for your question, Mr. 
Chairman. It is a very important one. And DOE's 2011 Critical 
Materials Strategy will be released this month, and in that 
report, we have analyzed about 16 critical materials. We have 
looked at their role in the clean energy economy and we have 
looked at supply over the years ahead, and we have criticality 
assessments. We are updating the announcement that we did last 
year, and we hope it will be informative to the community that 
is working on these issues.
    With respect to your question about the role of government, 
I think you identified, and others have as well, some central 
roles. Certainly, collecting information is central, and 
government plays an extremely important role in that. 
Government also plays an important role in supporting research. 
I would be careful about artificial distinctions between basic 
and applied research in this area. I think research across what 
are sometimes called technology readiness levels of different 
numbers are important, and I would just highlight one example 
in a different area along these lines.
    In the 1980s, the Department of Energy supported work in 
what was then not widely known technology called hydraulic 
fracturing and horizontal drilling. It is a technology used to 
extract shale gas. And it was by any definition applied 
research that the Department of Energy was doing, partnering 
with companies in order to further develop this technology. 
Well, that work was picked up by companies and today we have a 
shale gas revolution here in the United States, which is 
revolutionizing our power markets and is spreading around the 
world. So I don't think we would have wanted to be limited at 
that time by any artificial distinction. I think we should be 
careful of it now. So I think government's role there is 
important.
    There is one other principle I want to highlight in terms 
of government's work on this, since you asked about it, Mr. 
Chairman, is interagency coordination. I am keenly aware 
sitting at the Department of Energy that we only work on a part 
of this issue, the critical materials issue. So it is very 
important that we coordinate across the Federal Government. We 
are doing that now within the Administration led by OSTP.
    Chairman Harris. No, I appreciate that, you know, since you 
mentioned hydraulic fracturing, which is kind of a favorite 
topic for the Committee at some times. You know, the problem is 
that, you know, when you go again to applied technology, then 
you do pick winners and losers, and right now the Department of 
Energy and the Environmental Protection Agency are picking 
hydraulic fracturing as a loser. They are not doing innovative 
research in it, even though it is one of the most promising, 
and I guess that is my problem with that.
    But Mr. Erceg, you know, you bring up an important point. 
Obviously, there is the imprimatur of somebody having like the 
Federal Government agency having reviewed a proposal and said 
yeah, this has merit, is obviously important. But your point 
that, you know, you even made the point that the government 
grant was for $3 million for your company but it leveraged into 
$42 million of private capital, venture capital, I take it. 
Obviously, that means that the venture capitalists weren't 
looking at the government's investment per se, the $3 million, 
because that is a drop in the bucket compared to what it is 
going to cost to develop your technology, but merely the fact 
it had been reviewed and it was felt to be a useful, 
potentially useful process, and I think your process was more 
along the lines of applied technology and the basic research 
similar to Solyndra was applied technology, not basic research. 
Is in fact the importance of what the government can do as 
reviewing these proposals and the amount of dollars to it is 
maybe not as important, that it has gone through a third-party 
outside, you know, substantive review?
    Mr. Erceg. Thank you, Chairman Harris. I certainly would 
agree with that. If you look at the history of Simbol, when we 
were seeking our first round of funding, there were in fact 
next to no private industry experts in this field, and that 
actually led us to senior scientists at the Lawrence Livermore 
National Laboratory, and so what you actually had was a 
confluence of activities. What we saw was government was 
deciding that electric vehicles was one of the key policy 
initiatives for the Department of Energy to pursue that. In 
addition to that, Department of Energy has been a long-term 
supporter of geothermal technologies programs. You know, we 
have had a decline in the availability of technical talent in 
this country in these areas. In fact, you know, all the 
investment that has gone on through the last couple of years 
has been to build a U.S. industry around electric vehicles. We 
have had a decline in addition to that in technical talent for 
geothermal. So when it came time to validate the approach the 
technologies that we were doing, the DOE had a very, very 
important role. The geothermal side of the DOE was able to 
essentially say yes, this has a lot of benefit to geothermal 
producers, not every one of them but certainly it has a benefit 
to promote geothermal investment and development, and then 
secondarily coupled with the policy initiative that producing 
these materials from a brine could satisfy other important 
policy areas as well, that $3 million became an enormous signal 
to the market that this was an area that government and the 
United States was committed to.
    Chairman Harris. And again, because you seem to suggest at 
the beginning of your answer, it is not as much the value of 
the dollars but that a collection of experts had looked at it 
and said this is valuable?
    Mr. Erceg. That is correct.
    Chairman Harris. Thank you very much.
    Mr. Miller.
    Mr. Miller. Thank you. I think Dr. Scissors and I agree 
that government should not rush to solve problems that the 
market will solve on its own. I think we differ on how long we 
are willing to wait for that to happen. A source that I know is 
not revered at Heritage said that in the long run, we are all 
dead, and in this case, I think waiting for the market to solve 
its own problem will be a very long wait when there are massive 
barriers to entry, massive investment required to compete with 
the Chinese, who we know will use predatory pricing, have in 
the past, will again, and have very deep pockets to wait out 
any potential competitors.
    Dr. Jaffe, I was struck by your using the term 
``fundamental research.'' It appeared to me that you were 
trying to skate over that distinction between basic and 
applied, wanting to avoid that argument. It appears that we 
do--there is some picking of winners and losers about what 
research is done, what research is funded by the majority. The 
losers are called applied, the winners are called basic. There 
is not a clear distinction. There is no bell that goes off when 
basic research crosses over into applied, and it appears that 
most of what we are talking here would meet the usual 
definitions of applied and yet it seems that most of us think 
we need to do it.
    Is there a useful distinction there? What should the 
distinction be between what kind of research in this area we 
support and what isn't? If you say let us not do basic--let us 
not do applied but let us do basic, what is your definition? 
How are you defining that? Let us start with you, Dr. Jaffe. 
Which is fundamental research is applied, which of your 
fundamental research is basic?
    Dr. Jaffe. Thank you for the question. I think we did 
choose that word ``fundamental'' quite carefully. There are 
picking of winners and losers when any research task is 
presented, whether it is at the very basic level or at the 
applied level. The distinction that seems most meaningful to me 
is time scale. It seems that private enterprise shies away from 
making investments in research that have very long payoff time 
scales, and that--those kinds of efforts usually fall to 
government or foundation-sponsored research, whether it is in 
the area of very abstract research like I do or whether it is 
in the more practical areas of research like recycling or 
lifecycle analysis.
    When I listed those areas of research ranging from 
characterization of resources all the way through to recycling 
and resource analysis, it seems to me that that spans a 
spectrum more identified by the time scale than it was by the 
character of the individual investigation.
    Mr. Miller. Anyone want to answer this question in 15 
seconds?
    Dr. Scissors. I will take a shot. It is the market view, it 
is not the science view, which is when there is a single firm 
or single technology, it is very difficult to see how you are 
not moving--a firm, not a research center--how you are not 
moving into applied research.
    Mr. Miller. Anyone else, a very quick answer? Okay.
    One of the differences between the bill that I have 
introduced and Mr. Hultgren's bill, and I think a weakness of 
the Hultgren bill, is that it gives significant responsibility, 
coordinating responsibility, to an agency that exists only by 
Executive Order. So we could get statutory authority to an 
agency that might not be there if this President or another 
President changes that Executive Order. But everyone seems to 
agree that there should be coordination between agencies. The 
Department of Defense has national security needs. Department 
of Energy obviously has energy needs. The Interior Department 
historically has kept records in this area, has a role as well. 
Who do you think should be in the position of--Dr. Holdren, I 
think, I said in June that OSTP was taking the lead in 
coordinating across agencies. What--Mr. Sandalow, perhaps you 
could start. What agency do you think should have that 
coordinated role going forward?
    Hon. Sandalow. Well, thank you for the question, 
Congressman. I am not in a position to comment on the specifics 
of legislation and the different proposals that are out there, 
but just two thoughts in response to your question. First, 
today, the Office of Science and Technology Policy is 
coordinating our work within the Executive Branch, and that is 
working very well. They are convening regular meetings on this, 
making sure that the different experts are talking to each 
other and that policy is coordinated. And I guess I would just 
add, you know, more broadly, from looking--I have had the 
opportunity in the past week or so to look at the different 
bills that are out there, and I think, as someone said, we have 
about 10 or 12 bills, and I see in those bills a lot more 
similarities than I see differences. And so this may be an 
opportunity where different sides can come together and really 
enact something that would be good for the American people, 
good for American business and move us forward in this--on this 
topic.
    Mr. Miller. Dr. Gschneidner, you testified before the I&O 
Subcommittee in 2010, just last year, and you emphasized the 
need to attract young people to research in this area and to 
build a workforce in this area. What provisions should we make 
for educating a workforce in legislation or otherwise?
    Dr. Gschneidner. Well, as I noted in my testimony at that 
time and also in the testimony today, I think a national center 
for rare earth research and energy would be a very good step in 
the right direction where the center would be located, as far 
as rare earths are concerned, at a university which has a long 
background of history, and that would be the major thing, but 
there would be other satellites at other universities which 
contribute their expertise which is not found in the main 
thing--and I think the other thing is scholarships in addition 
to stipends to attract students into this area.
    Mr. Miller. Thank you, Mr. Chairman.
    Chairman Harris. Thank you very much.
    I recognize the gentlelady from Illinois, Ms. Biggert.
    Mrs. Biggert. Thank you, Mr. Chairman, and thank you for 
holding this hearing.
    This question is for Dr. Sandalow and others if they care 
to respond. Recognizing that critical materials are the 
foundation for batteries and much of the focus of battery 
improvement, how would you characterize critical materials from 
a supply perspective as it relates to acquiring these materials 
for battery production?
    Hon. Sandalow. Well, thank you, Congresswoman, and let me 
recognize in answer to your question the really superb cutting-
edge work done by Argonne National Laboratory in the topic you 
were asking about. Argonne has really been a leader in battery 
research for many years.
    Last year in the Department of Energy's Critical Materials 
Strategy, we identified a number of materials that are 
important for batteries and assess their criticality, as we 
said. We looked at lithium and concluded that lithium--there 
are issues with respect to lithium supply, particularly with 
lithium ion batteries. We didn't classify them as the most 
critical, as one of the most critical elements in terms of 
overall supply. We found that there are likely to be adequate 
supplies of lithium going forward. Other batteries, nickel-
metal-hydride batteries, have other elements that are 
important, and actually sitting to my left are some of the 
world's experts in the chemistries of nickel-metal-hydride 
batteries and so with them sitting at the table, with your 
permission, we will pass the microphone to them.
    Mrs. Biggert. Well, first, let me just continue with this 
question and then we will do that, because, you know, obviously 
Argonne is doing a lot of research on the work on batteries, 
and I am always focused on taking that technology from the lab 
to the marketplace. Would you consider the supply issue 
critical at that point, taking it out of the labs to the 
marketplace, or is it something to monitor for the time being?
    Hon. Sandalow. Just maybe two pieces of that question. 
First, in terms of our progress overall on batteries and 
battery research, this is an extremely important area for the 
U.S. transportation sector. Right now, we have electric 
vehicles that are on the roads for the first time. They are 
starting to make a difference and they will make a big 
difference, particularly if the cost of these lithium-ion 
batteries can be reduced, and research in this area is so 
important for reducing our oil dependence, for reducing our 
dependence on foreign oil, and it is important that we move 
those batteries to the marketplace.
    In doing that, we need to pay attention to the material 
inputs for those batteries. Obviously, that includes lithium. 
Our analysis and the analysis of others concludes that lithium 
is not among those materials that is most critical in terms of 
supply, that there are adequate supplies of lithium out there. 
There are other materials that are important as well.
    Mrs. Biggert. All right. Would somebody else like to 
address that? Yes.
    Mr. Erceg. Congresswoman Biggert, I would like to just 
address this question of lithium supply and even the supply of 
critical materials. First off, as has been noted on this panel, 
we are not running out of any of these raw materials in the 
earth. What we are lacking here in this country is the ability 
to produce these materials and process them. That requires a 
highly skilled and trained workforce. It requires research and 
development. But it also requires paying attention to the 
entire supply chain from how that material works its way from a 
company like ours where I can assure you the technology in 
producing a high-end lithium carbonate or lithium hydroxide for 
use in a battery is as complex as producing a cathode power, 
okay? And when you move these materials through the supply 
chain, if elements of that supply chain do not exist, there are 
no bonds for innovation. You lose the ability to innovate 
throughout the industry, and that is, I think, what is critical 
to understand is that critical materials support innovation and 
we need to foster that innovation.
    Mrs. Biggert. Thank you.
    And then Mr. Sandalow again, as our country faces the 
fiscal constraints and our economy is facing some pretty strong 
headwinds, we are making progress but it isn't enough, and as 
such, we in the Federal Government need to do our part to 
cancel or at least rein in those programs that are not 
delivering the value for the money to our taxpayers, and in 
terms of program management, what research and development 
milestones or goals will teams competing for the critical 
materials energy innovation hub need to meet so that we can 
better evaluate our return on the investment?
    Hon. Sandalow. Thank you for the question, Congresswoman. 
It is extremely important, and let me note that a couple of 
years ago when I had the privilege of first coming into this 
job, I looked around the Department of Energy and realized that 
there was no coordination across the many parts of the 
Department of Energy or very little coordination with respect 
to our research in this area. That is one of the reasons that 
we pulled together our team within the diverse parts of the 
Department of Energy to coordinate to be sure that we weren't 
duplicating efforts in this area, and that internal 
coordination I think has paid a lot of dividends for the 
department and I hope for the taxpayers.
    The exact question that you are speaking about in terms of 
our R&D plan is one that we are going to be addressing more 
specifically in the Critical Materials Strategy that we are 
releasing this month and so if you are interested, we would be 
delighted to send that up to you.
    Mrs. Biggert. That would be great. I appreciate that. Thank 
you.
    Yield back.
    Chairman Harris. Thank you very much.
    I now recognize the gentleman from California, Mr. 
McNerney.
    Mr. McNerney. Thank you, Mr. Chairman.
    Mr. Erceg, as a business from my district, I would like 
to--and I am really thrilled to welcome you here today and have 
you share the story of your success with us. Can you expand a 
little bit on the grant you received from the Department of 
Energy and how that helped you and your company create jobs?
    Mr. Erceg. Certainly. Thank you, Congressman McNerney. So 
we in 2009 had received a $3 million grant from the Department 
of Energy's Geothermal Technologies program, and the grant had 
arisen to foster the commercialization or in testing of the 
extraction of materials from geothermal binds and to validate 
that technology. So at the time we had 16 employees, and we had 
done a lot of applied research in our own laboratory efforts, 
building on some of the work and understanding that had been 
gained from working with Lawrence Livermore, and then the $3 
million that was granted to us was actually--actually paid for 
the salaries of many of the employees that helped us run these 
processes in a commercial-like environment. So we raised 
additional capital, continued to invest our own capital to put 
in the hard assets and equipment and then the $3 million grant 
was predominantly used for the salaries necessary to operate 
this facility in a 24 by 7 basis so that we could replicate and 
demonstrate that the technologies had matured to a point where 
you could now build a commercial-scale facility.
    In addition to that, the capital has also fostered 
additional R&D opportunities with universities and with 
national labs where we continue to work on programs for 
extracting other materials. The interesting thing is, is that 
this signal also led the State of California as itself to 
provide us with substantial opportunities such as matching 
grant dollars and then in addition to that sales tax exemptions 
that were provided for acquiring commercial-scale equipment and 
building our facilities.
    Mr. McNerney. Would you say that regulations have stifled 
business and growth in your case or in general?
    Mr. Erceg. So regulation is always tough, and I don't opine 
on whether we should have regulation or not. We respect the 
fact that the regulations exist and that we have to adhere to 
the laws of the country. In our instance, actually regulation 
had an interesting effect, is that it actually fostered more 
innovation. So it actually drove us into a more sustainable 
process. The net result of that was that we could be more 
sustainable in the form of production that we use to produce 
lithium compounds than our competitors can while at the same 
time being able to compete with the lowest-cost producers. So 
in that respect, it had a very positive outcome.
    Our concern with regulation is just simply timing. You 
know, as long as we know that there is timing transparency and 
consistency, I am confident that, you know, American innovation 
can adhere and be competitive.
    Mr. McNerney. Thank you.
    Mr. Scissors, it seemed to me that you were saying to trust 
the market and hope for the best, and, you know, I don't think 
the Chinese use that model, and I bet you they are hoping that 
we continue to use that model but I just can't abide with that 
approach. The market is not a free market. We need some 
participation and guidance from other sources than just the 
market itself.
    Dr. Scissors. Would you like me to reply, sir?
    Mr. McNerney. I threw the first stone. Throw it back if you 
want.
    Dr. Scissors. Okay. It is not just trust the market and 
hope for the best. Rare earths exist because of the market. You 
know, we are just not hoping for something, we have evidence 
that the market works. We have evidence from the beginning of 
private sector innovation. We have evidence in the last year 
when the Chinese, as you are absolutely right, tried to play on 
the market and they failed. They haven't failed forever. I 
agree with both comments.
    Mr. McNerney. You said they tried to----
    Dr. Scissors. They tried to drive up prices and now they 
are failing. That is the whole point of trying to take over a 
market so you can drive up prices and control the process and 
that----
    Mr. McNerney. That drove up market prices pretty 
significantly.
    Dr. Scissors. Absolutely, and I don't mean to imply that 
because----
    Mr. McNerney. They made a lot of money in the process, and 
our companies have paid the price for that.
    Dr. Scissors. And now they are losing a lot of money, and 
my point is not that they are not going to try again. They are 
going to try again. The point about whether the market works is 
whether other firms can enter, whether consumers can respond, 
and they can and they have. I am not relying on the Chinese to 
do anything nice. I have studied the Chinese economy for 20 
years. They are going to be predatory. Is it possible--I will 
stop in a second, I am sorry--for market participants to 
respond, and we have seen evidence that it is.
    Mr. McNerney. All right. I think I will yield back.
    Chairman Harris. I recognize the gentleman from--I didn't 
see you sitting over there--the gentleman from California, Mr. 
Rohrabacher.
    Mr. Rohrabacher. Thank you very much, and I am sorry, I was 
here a little bit late. This is December 7th, and there is a 
group of Pearl Harbor survivors downstairs who I was meeting 
with, which sort of fits in with what we are talking about 
today, doesn't it? The fact is that American security can be 
attacked whether through economy and economic means or through 
military means, and certainly what we are talking about today, 
Mr. Chairman, goes directly to the security of our country 
because we realize that many of the materials that we are 
talking about today and the elements that are necessary to have 
a modern society are at risk, and we are vulnerable to what is 
a government that is the world's worst human-rights abuser, 
perhaps like Pearl Harbor where the Japanese militarists at 
that time were actually the greatest expansionary power along 
with their Nazi allies. Today, the Chinese communist regime has 
leverage over the West that it should not have, and if we are 
to make sure that it does not, we have to look at this from 
many different directions, and I will read your testimony, and 
I appreciate--I am sorry that I was not here. I was down with 
the Pearl Harbor survivors.
    But just a few thoughts, and that is--and maybe your 
reaction. If I am saying something repetitive, please feel free 
of not commenting. But if we are to have the security we need 
in these materials, we of course need research and development 
that will make sure we have alternatives, but we also need to 
make sure that the regulatory policies of the government will 
permit our people to do what is necessary to meet the 
challenge, but also we need to make sure that we have a policy 
at the Bureau of Land Management and the Department of Interior 
that will permit us when we have these materials available 
domestically that will permit us to actually let our people to 
do their job in getting us those materials and processing them. 
We should take this very seriously because China is taking it 
seriously, not only in manipulating the market, as the 
gentleman just said, but in going around the world making 
alliances with other horrendous gangster regimes, whether it is 
Burma or whether it is African countries and Sudan, et cetera, 
in order to have this quest of having control of these very 
necessary materials for modern-type equipment.
    So with that said, I just thought I would put that into the 
record. Maybe some of you have any comment on that. Please feel 
free. I am sorry if it was repetitive. Yes, sir.
    Dr. Scissors. I will just briefly comment on your land 
management issues because I brought that up quickly in my 
testimony. I agree. I suspect we don't agree on everything but 
I agree with you there, and I said that there is a commercial 
return available. We have, in my opinion, a properly 
functioning market. When you expand the size of a market, you 
get wealth from that. I am not arguing to the committee that 
there are no other considerations and I am not arguing that I 
know a lot about those considerations. There are lots of 
considerations. I just want to put it on the record that in 
addition to the national security aspect that you are referring 
to, there is a commercial return to expanding the land 
available for ECE exploration. There may be countervailing 
factors but there is a positive one to think about.
    Mr. Rohrabacher. Well, let us just note that something as 
heralded as solar energy has been dramatically hampered by the 
Bureau of Land Management. I mean, it wasn't until this year 
that after prodding, after years and years of putting pressure 
on the Bureau of Land Management that they were willing to give 
any contracts or any approvals for solar energy sites in 
America's deserts. I mean, there was, I think, over 200 
applications and not one of them had received an approval from 
the Bureau of Land Management, and it wasn't until 
Congressional pressure--I wrote the legislation and submitted 
it--was exerted that they ended up permitting, and that is 
something as easy to understand as putting out solar panels, 
and sometimes the people who work for government will get 
distracted and in this case I think it was the habitat of the 
little lizards and the insects that were more important than 
the well being of the American people that prevented us from 
making those kind of decisions.
    Let us make sure that doesn't happen in something with 
these vital materials because we are not going to have the 
industrial and the modern society that makes our standard of 
living unless we do take care of this challenge.
    Thank you very much for holding this hearing, Mr. Chairman.
    Chairman Harris. Thank you.
    I recognize the gentleman from New York, Mr. Tonko.
    Mr. Tonko. Thank you, Mr. Chair.
    Assistant Secretary Sandalow, I am encouraged by your 
reports that efforts are underway to increase our supply of 
energy-critical materials. While that is good news, especially 
for some companies in my district that are manufacturing 
products that require these elements, but I would ask if DOE 
has responded to this barrier to retaining and expanding 
manufacturing by creating--by doing more if we want firms to 
manufacture, like a question to you would be, is DOE's effort 
linked with a broader strategy to put the manufacturing model 
and link it to these efforts, and is OSTP or the Commerce 
Department part of a broader strategy to encourage domestic 
manufacturing, not just a reliable supply of energy-critical 
materials?
    Hon. Sandalow. We are, Congressman, and thank you very much 
for that important question, because U.S. manufacturing is so 
vital for economic growth, for job creation, and the President 
has proposed extending the manufacturing tax credit known as 
48(c) and a variety of other policies that are central and 
really beyond the scope of the particular issue that we are 
talking about in this hearing. I know in your district there is 
a company called Tonko, I believe, which is doing terrific work 
in this area, and within the Department of Energy, we are 
looking at this issue as part of a holistic package within the 
Administration, coordinating with the Office of Science and 
Technology Policy and the critical-materials aspect and other 
parts of the government on manufacturing policy.
    Mr. Tonko. And Dr. Jaffe, in your testimony, you suggest 
there may be a significant amount of energy-critical materials 
contained in discarded cell phones and other electronic 
devices, things we now refer to as e-waste. Do we have 
processes for collecting and recovering these materials for 
recycling?
    Dr. Jaffe. For some of them, yes. For others, it is a 
subject of future research.
    Mr. Tonko. Well, with the number of manufacturers that have 
moved their facilities to China to gain access to their supply 
of ECEs, do we have enough demand here to make recycling an 
economically viable option?
    Dr. Jaffe. At the present time, recycling couldn't possibly 
satisfy the need for new supplies of these critical elements 
simply because the demand is growing so rapidly, the amount in 
present use is not sufficient. There are other economic puzzles 
and scientific puzzles, one of them being that cell phones seem 
to migrate down the economic world and end up when they are 
finally discarded in countries where obtaining a stream of 
recycling is very difficult.
    Mr. Tonko. Thank you.
    And Dr. Gschneidner, you provide a list of research needs 
in this area. Are any of these underway at DOE or are they 
being funded by the department at this time?
    Dr. Gschneidner. There is some work being done at various 
DOE laboratories but I don't think they are coming out of 
regular projects. I mean, they are sort of diverting funds, you 
might say, into that direction.
    One of the problems I want to comment on, on rare earths, 
is that the amount of rare earths in a cell phone is 
insignificant. It is .1 weight percent, which makes recycling 
very difficult. Of course, if you recycle it for the gold, the 
platinum and the copper and co-mine it, that makes it move in 
the direction you want to go. But as Dr. Jaffe says, a lot of 
this material is being shipped overseas. The recycling problem 
for the rare earths is difficult because the amount of rare 
earths in most applications is pretty small except the wind 
turbines, but there are not very many of them that are ready to 
be recycled anyway. So it is a difficult challenge on the rare 
earth side.
    Mr. Tonko. Thank you. Thank you very much.
    Mr. Chair, I yield back.
    Chairman Harris. Thank you very much.
    I recognize the gentleman from Illinois, the sponsor of 
H.R. 2090 and a member of the full Committee, Mr. Hultgren.
    Mr. Hultgren. Thank you, Mr. Chairman. I want to thank you 
for letting me join the Subcommittee today.
    Thank you all very much. This is a very important 
discussion and I am so grateful for the important work that all 
of you are doing and getting ready for the next steps that we 
need to take as Members of Congress here.
    I want to start with Assistant Secretary, a quick question 
for you, Assistant Secretary Sandalow. I know you can't give 
your opinion on my bill but I wondered if you could share your 
thoughts on Dr. Jaffe's recommendations in his report.
    Hon. Sandalow. Well, broadly, we think the report is a 
really important contribution to the discussion here. I don't 
want to comment on every specific recommendation in there but 
it really is a very important piece of work. We thank Dr. Jaffe 
and the whole committee that worked so hard on it.
    Mr. Hultgren. Thank you.
    Expanding my question to the rest of you and specifically 
the strategy for critical materials, kind of a long question 
here, but I wonder if you could comment on this. What are your 
perspectives on the December 2010 DOE Critical Materials 
Strategy? Specifically, what input can you offer on the three 
key points that are outlined in the report including the need 
for a diversified supply chain, the development of substitutes 
and increases in recycling and overall efficiency? I wondered 
also if we have time if you can mention your opinion, what is 
the appropriate proportion of the amount of effort expended 
towards each one of these items and how might a focus on 
development of substitutes and on recycling and efficiency 
improvements impact the overall industry? So starting with Dr. 
Scissors, I wonder if you would have some comments.
    Dr. Scissors. Okay. I am going to give again the market 
view as opposed to the science view, and the market view is, we 
already are diversifying supply and we already are 
substituting, and that is best handled by the market because 
the market responds to prices and prices are what cause supply 
diversification and demand substitution. If the government 
orchestrates that, they are going to get it wrong. They are 
going to substitute the wrong things, they are going to 
diversify into the wrong things because ultimately what we are 
trying to satisfy is market demand, not government demand. So 
the government steps in. We are going to get a mismatch between 
demand and supply.
    Where I would see a government role is recycling simply 
because environmental protection is part of the government 
mandate. That is a public good. It is an appropriate government 
role. We have heard from my colleagues challenges in this area 
and make it a disincentive for the private sector to recycle 
because the commercial return is low due to content and because 
we are relocating our waste overseas, which is also a proper 
government role. So I would stress the recycling side for the 
government, not because the other two points aren't important 
but because they are properly handled by the private sector.
    Dr. Jaffe. If I might respond, I think there are three 
different timescales involved here. The diversified supply 
chain recognizes the present reality that these elements are 
found all over the world and in all kinds of different 
circumstances and that in order to maintain the present supply 
we have to cultivate supplies wherever they occur. The research 
efforts adjust over a somewhat longer time scale looking for 
substitutes, looking for new ways of identifying resources. And 
finally, I think the recycling efforts are an investment in the 
longest term. I think the public simply doesn't appreciate the 
preciousness of these materials. Many of them are literally 
less abundant than gold on the surface of the earth and they 
should be regarded as the same way you would regard your 
discarded diamond rings or fillings from your teeth.
    Dr. Gschneidner. May I make a comment? I agree with Dr. 
Scissors in part in that the market situation has developed so 
that the Molycorp now is a U.S. producer. They are going to 
produce about 5,000 to 6,000 tons this year, 12,000 next year 
and 40,000 probably by the end of 2013, beginning of 2014. The 
problem is--I think that part of the problem--I said there are 
three parts to the rare earth crisis, and that is the first 
one. The second one and the third one, which are the most 
serious ones which we need to really consider is what happens 
after Molycorp mines this stuff. They are going to make metals 
and then they are going to make magnets. What are we going to 
do with them? Are we going to ship them back to China to make 
all these things? We have to build up our infrastructure at 
that point, and I think maybe at that point guaranteed loans 
and tax incentives for the manufacturers that make the products 
out of the magnets, out of the phosphors and so forth, and I 
think we need to support.
    And then the final thing, as I mentioned earlier before, is 
the education. We have got to train people, and it is a long 
term. It is ten years down the road before these--maybe five 
plus before a Ph.D. becomes really productive. It takes four 
years to get if he is lucky, and maybe five years. And so by 
the time he really becomes productive, it is a long-term 
investment. So we--and the government has to do that. I think 
there is just no doubt about that, that we have to do that. And 
we see that. It is already occurring. As a matter of fact, next 
year one of my colleagues is going to be teaching a rare earth 
course, a three hour credit. It is going to be distance 
learning for anybody available in the whole world. And Colorado 
School of Mines is also working on some of these things.
    So I think things are moving but we do need some help in 
certain aspects of these things down the road from the Federal 
Government. Thank you.
    Mr. Hultgren. Thank you.
    Mr. Chairman, can I see if Mr. Erceg has any quick 
comments? Do we have time?
    Chairman Harris. Sure you can, and we will have a round, a 
three minute round of questions follow-up if you would like, 
but you can----
    Mr. Hultgren. Just quickly, Mr. Erceg.
    Mr. Erceg. Thank you. I would just note that diversity of 
supply, substitutes and recycling form a circle, and this 
circle is linked through R&D and education, and if we focus on 
diversity of supplies being more than just a shovel in the 
ground and that it includes processes and downstream 
production, as you build those processes up, R&D and research 
will continue as substitutes, but when we do get to the 
question of recycling, the existence of manufacturing here in 
the United States will also enable recycling, and it is very 
important to not lose sight of the coordination that occurs in 
the market if all elements of the supply chain exist.
    Mr. Hultgren. Again, thank you all.
    Thank you, Mr. Chairman. Yield back.
    Chairman Harris. Thank you very much, and as I said, I know 
some members have additional questions. We are going to have 
just limited three minute round of questions, and I will start.
    Dr. Scissors, let me ask you a question. You are kind of a 
policy person. As we go to authorize these things, one thing I 
personally wouldn't want to see is an authorization of 
something that would lead to another Solyndra where we 
authorize a program that really isn't basic research, that 
really does attempt to pick a winner and loser, and isn't--you 
know, the function of basic research in my mind should be not 
to necessarily project exactly where things are going to go in 
the future but to set open the array of options that science 
and scientific development could present. How do we do that 
with regards to this? How do we do this in this legislation so 
that--again, you know, we have seen this with, for instance, 
coal energy research where the Administration has decided, you 
know, it is just going to do carbon sequestration is the 
answer. Now, I will tell you what is going to happen. It is not 
going to be the answer and we will have lost valuable years 
where we could have done basic research on, for instance, 
developing the metallurgy to develop the high-efficiency 
carbon, high-efficiency coal generation facility for instance. 
How do you think we do this in the legislative structure?
    Dr. Scissors. My incomplete but I think valuable as part of 
the answer is, you can't--you know, Solyndra. You can't involve 
particular companies. You can't identify a company or a 
technology. The government has to be working, if it is going to 
do this, with multiple companies and multiple technologies. If 
you pick one, first of all, it is at odds with the whole idea 
of a competitive market. I think everybody in this room wants a 
competitive market in rare earth but the government picking out 
a company is immediately at odds with that.
    And second, partly going back to the ranking member's 
comment, you are setting up a giant target for our deep-
pocketed competitor to destroy. It is much harder to respond to 
basic research and progress on a wide variety of fronts than it 
is to say this is the company that is getting U.S. money. So it 
is not a good tactic, you know, as somebody who works in 
markets, it is not a good tactic to pick out a single company 
or single technology. It is also going to end up biasing the 
technological development and causing inefficiency in the 
industry. So I have an incomplete answer for you but the start 
of the answer is, if you are looking at one technology and one 
company the government is making a mistake.
    Chairman Harris. Dr. Jaffe, let me ask you, because I think 
the study that you are involved in made recommendations on 
that. I mean, how do we--and you noted that big companies can 
do it. GE can do this on their own but it is the small 
innovative companies that maybe can't. how do we protect 
ourselves from placing those wrong bets?
    Dr. Jaffe. Well, I frankly, I think it is impossible to 
prescribe the rules of basic research in detail in legislation. 
I think that creating a constituency for basic research and 
then trusting the imagination and creativity of the world of 
higher education, national laboratories and industry to arrive 
at research topics through peer review is the way to go. But I 
would still warn you that 75 percent or more of the research 
activities that are undertaken now come a cropper, and the 
creative part that comes from the remaining 25 may end up being 
something that you didn't imagine in the first place at all.
    Chairman Harris. Thank you very much. I know that is true 
in medical research. That is for certain.
    I recognize the gentleman from New York for three minutes.
    Mr. Tonko. Assistant Secretary, when DOE does respond to a 
need out there for the Nation, does it look to an array of 
companies, an array of technologies, or do you determine a 
single source and single solution?
    Hon. Sandalow. Congressman Tonko, thank you for your 
question. We look at an array of companies, and this is an 
important question so I am glad this Committee is talking about 
it, and, you know, I would say this. Governments around the 
world are deeply involved in energy markets today, and they 
have been for decades, and so the people of the United States 
acting through their government are standing up for their 
businesses or helping their businesses succeed in the global 
marketplace. That is an extremely important role. Now, as we do 
that, we absolutely, as you say, Congressman, are looking at a 
broad range of businesses, and the one that is here is a great 
success story about creating jobs and making a difference for 
Americans today using funding from the American people and 
through the Federal Government.
    Mr. Tonko. And to the panel at large, compared to other 
commodities, how transparent is the global market and how 
sensitive is this market to uncertainties and volatility?
    Dr. Scissors. That is something I know a lot about. At 
present, it is very sensitive and not transparent, and that is 
exactly as you would expect. We have a currently dominant 
producer. Even though its market share is shrinking, it is 
still dominant by any measure, and the only thing they are 
transparent about is bragging about their predatory pricing, 
that they are going to drive people out of the market and raise 
the prices. So I guess in some sense, they are providing us a 
service by being so transparent. It certainly makes the WTO 
case easier. But, you know, reserve--we are just at the 
beginning of figuring out what we should be looking for, what 
are the critical elements here. They are changing. Where are 
they? You know, we see this in the United States, which is far 
more transparent than China is. We don't really know where the 
deposits are yet. So this is the early stages of a market, and 
I would argue the market is moving very rapidly but I agree 
with your point that compared to other important commodities in 
energy, we don't know as much as we do elsewhere.
    Mr. Tonko. Mr. Erceg?
    Mr. Erceg. Thank you, Congressman Tonko. You know, being a 
market participant, I can tell you that in the context of 
critical materials, there is very, very little transparency, 
and what ends up happening is, there seems to be a fair amount 
of transparency in the earliest part of the supply chain, where 
are deposits, what does it cost to bring a shovel of material 
out of the ground. The moment you start separating these 
materials and defining them as compounds and derivatives, you 
lose complete visibility into the markets. It just becomes so 
clouded because the number of players becomes more and more 
fragmented and reduced as you move through the various 
components.
    We can throw the term ``lithium'' around very, very easily 
but, you know, I not being scientifically trained could bore 
you for an hour with a list of compounds and derivatives that 
come out of lithium and I can point to the fact that there 
might be only one producer or two producers in each instance. 
So it is very important that the research that goes on 
sponsored by the government in terms of understanding the 
markets such as what Mr. Sandalow's office is doing and goes on 
at the DOD and other places because that offers us visibility 
into what are our key policy initiatives and then the market 
can determine, all right, well, which compounds and derivatives 
are critical to meeting those components and then you can have 
a market response, which is what happened in Simbol's case. But 
we really have to focus on the fact that to create a 
competitive economy, and a competitive response in this area, 
we need more players here in the United States as well and only 
in that way can we ensure that our Nation has market signals as 
well.
    Mr. Tonko. Thank you.
    Chairman Harris. Dr. Jaffe.
    Dr. Jaffe. Thank you. I just wanted to add briefly, I 
certainly agree that the absence of transparent and robust 
markets is a serious issue, and that was the motivation behind 
our recommendation for a higher level of information gathering 
and dissemination. The Energy Information Administration does a 
remarkable job of gathering and making available facts about 
energy from production through consumption for countries all 
over the world, and we don't have any similar way of gauging 
the availability and life of these materials that are becoming 
so critical.
    Chairman Harris. Thank you very much.
    I recognize the gentleman from California, Mr. Rohrabacher.
    Mr. Rohrabacher. Thank you very much, and again, I missed 
the opening here. I was down with our Pearl Harbor survivors, 
so I am sorry if this is repetitive but perhaps it again fits 
in with this whole idea. This is December 7th. We were attacked 
at Pearl Harbor and we lost 3,000, basically 3,000 lives of our 
military personnel there in Pearl Harbor and the battleship 
sunk our ability to defend ourselves was immediately changed 
for the worse and put us in a very desperate situation for the 
first year of that war. What type of danger are we in now in 
terms of these critical materials? I mean, there is not going 
to be a sneak attack where bombs will be dropped but what if--
and we already know the Chinese are willing to attack us 
economically. They have already tried that to a limited degree 
of success and maybe long-term failure, according to our 
Heritage Foundation witness.
    So what danger are we in? Are we in danger of the American 
people's standard of living being impacted if we don't pay 
attention to this rare earth issue and what we are talking 
about today? Could our economy be severely damaged and American 
people's standard of living actually go down unless we do 
something dramatic about this? Maybe everyone could have a 
little--whoever wants to do it.
    Dr. Gschneidner. May I make a comment, please, on the China 
situation? The China situation has changed considerably in the 
past few years, as we know, but I think a lot of things that 
people don't appreciate. The Chinese economy is growing so fast 
that the Chinese philosophy now is, we are not going to send 
our rare earth materials, which are very precious, to the rest 
of the world, we are going to keep them ourselves, as a matter 
of fact, they are going to compete with us for other supplies 
from other countries and so forth.
    The other thing is on the Chinese situation, the ore 
supplies. They have found out--you know, they had found this 
one rich deposit of the heavies, which is where most of the 
critical elements come from, is going to run out in five or ten 
years, and they realize that, and there are no other sources in 
China for this that have this rich deposit, and so that is 
changing a good part of their philosophy.
    The second thing is that, I have talked to--there was a 
conference in Hong Kong just a couple, few weeks ago, and I was 
there, and there was about 300 companies from all over the 
world that had, quote, rare earth deposits. Many of them are 
not. And they are looking into this business. The market forces 
are moving things in this direction.
    Mr. Rohrabacher. And if we don't succeed, is that----
    Dr. Gschneidner. No, I think----
    Mr. Rohrabacher. If we don't----
    Dr. Gschneidner. If we don't succeed---
    Mr. Rohrabacher. What can we face as a people and what will 
we see here as a people if we do not succeed on this issue?
    Dr. Gschneidner. Well, the places where we won't succeed is 
we have to have these companies that come in after the mining 
and the manufacturing and Molycorp comes. I think the supply 
situation is going to be basically more or less solved in a 
couple more years. But it is after these materials are 
available that we don't have the infrastructure and the 
commercial companies to do it and so we are still going to have 
to depend on the Chinese.
    Mr. Rohrabacher. And what will the impact be on the average 
American's life?
    Dr. Gschneidner. Well, it is a little bit hard to say but 
you will have to put up with some other difficulties.
    Mr. Rohrabacher. Maybe one of your other panelists can tell 
us.
    Dr. Jaffe. At a meeting preparatory for our report, we had 
a Korean representative who said that the past was the Stone 
Age, the Bronze Age, the Iron Age, the age of metals, and the 
future is the age of the rest of the periodic table. But 
looking forward to the next century, the engagement of these 
other elements which we haven't paid much attention to in the 
past will become pervasive in the economy. It will be 
everywhere. They may play minor roles in this element, in this 
object or this manufacturing process, but they are with us for 
the future and we need to take a long-term viewpoint. To ask 
what the individual effect on an American would be like asking 
in the 18th century what the effect on Americans would be of 
the absence of molybdenum, which is now a crucial ingredient in 
fabricating high-performance steels. We use it everywhere.
    Dr. Scissors. Well, being a resident of Washington, I will, 
you know, make up stuff. After my colleagues pointed out that 
there is no way to do this, I will do it anyway, but not 
because I think I am right, just because we are in Washington 
and that is what we do.
    Mr. Rohrabacher. Educated guesses.
    Dr. Scissors. Right. Just one element of context. Total 
amount of rare earths that we imported from China last year was 
$1.4 billion worth. We imported $2 billion of fish. This is not 
a cost issue. So when you are talking about pocketbook or 
coming out of Americans' pocketbooks, it is not a threat. When 
you are talking about future technologies, that is a different 
story, but coming out of American pocketbooks is not a threat. 
By that, I mean in terms of surprise on the defense side, you 
have looked at the DOD reports, I am sure. They don't see a 
short-term problem. So when you are talking about what we can 
do concretely for the short term, I agree with my colleague. 
This is not an issue. It is not something to worry about. There 
is no sneak attack that is going to cost us a lot.
    We don't know about the long term, and that is where 
learning more, providing more information, addressing 
transparency issues, we don't want to be surprised as we were 
as you referred to on December 7th.
    Chairman Harris. Thank you very much.
    Let me recognize the gentlelady from California.
    Ms. Lofgren. Thank you very much. I think this is an 
important hearing, and one of the reasons among many it is 
important is to let the American people know that despite the 
name rare earth, the elements aren't actually rare, and this is 
something that we can get ahead of except we need to get 
organized to get ahead of it.
    I would like to just ask a--I was at a hearing in the 
Judiciary Committee, which is why I am late, and we had the 
head of the FTC and the Department of Justice antitrust 
division, and one of the issues that we talked about was the 
interplay of patent law, which is exclusive, a grant of a 
monopoly, and antitrust, which is breaking up monopolies, and I 
noticed that Hitachi has refused to license its patent for 
high-grade permanent magnets, and there may be other instances 
where we are out of luck because of a license issue. Have we, 
Mr. Sandalow, as a department consulted with DOJ and with the 
FTC on whether this does in fact meet the obligations of these 
patent holders not to engage in monopolistic activities?
    Hon. Sandalow. I am not aware that we have, Congresswoman, 
and it is something that I will follow up on. Your question 
highlights an extremely important broader point and one that we 
were talking about before, which is the importance of 
developing intellectual capital in this area. This is not just 
about mines, it is also about minds. It is about making sure 
that Americans have the expertise to develop intellectual 
property in this area so we have the patents in the future.
    Ms. Lofgren. Yes, but if the patent is being held now by a 
monopoly that refuses unreasonably to license it to the 
detriment of our country as well as our industry, something can 
be done about that. So if you wouldn't mind getting back to me 
on your response to that, I would very much appreciate it.
    Mr. Erceg, you mentioned--your testimony, as I understand 
it, was that in some cases regulations can actually spur 
innovation, although there needs to be transparency and the 
timing does matter. Can you expound on that for me so I fully 
understand your point?
    Mr. Erceg. Well, thank you Congresswoman, for the question. 
You know, I think it is no secret in saying that California 
ranks as one of the most stringent regulatory regimes for any 
type of materials-based processing, and I would just use as an 
example that, you know, we were limited. The fact of natural 
resources is, we don't really choose where we find them, and in 
this instance, the natural resource being the salt and sea 
brine is located squarely in the State of California. So we 
knew that going in as a business model and understood that 
there was going to be a lot of regulation as to how you work 
with and process materials. Knowing that in advance, we knew 
that we had to develop our processes in such a way that, one, 
we could meet the needs of the regulatory authorities, but 
secondarily, before we could raise investment dollars, we had 
to be able to demonstrate that even with meeting those 
regulatory obligations, we could be competitive in the 
marketplace.
    So what ended up happening was, we had, you know, a 
brilliant team of scientists and engineers who represent the 
applied nature and then the actual tactical nature of our 
business came together and said oh, well, if we do this, this 
will allow you to do X, Y and Z, and that ended up, for 
instance, allowing us to reduce the CO2 emissions 
out of a geothermal power plant and reincorporate them in the 
carbonation step of our plants, and that is the example I would 
give as spurring innovation.
    I will say that, you know, regulation ultimately affects 
timing, you know, and that is a substantial concern. You know, 
when we look to competitors around the world, you know, their 
regulations are oftentimes more lax than ours, and I don't 
propose in any regard that we should reduce the regulatory 
burdens that are out there but we have to be conscious of the 
impact on time and what it does in allowing a company to reach 
a commercial point and built that plant going through the 
number of regulatory steps necessary. So, you know, I would 
just, you know, hope that we can take a balanced approach in 
society on this issue.
    Ms. Lofgren. If I may, Mr. Chairman, you can't breathe the 
air in Beijing today. You can in San Josen. So there is a 
reason for this but I think if we--if I am hearing you 
correctly, if the standards are set out in advance and you can 
look to them, that that is very helpful. Would that be 
accurate?
    Mr. Erceg. That is certainly accurate, ensuring that 
especially in areas of policy initiatives, if we can provide 
companies the opportunity to move rapidly through these 
processes, that too could be very beneficial, and that is not--
again, that is not a statement to say that we should lower the 
standard, just allow us to move through it much quicker, and as 
industry participants, we will rise to the challenge and 
innovation will help us.
    Ms. Lofgren. Thank you very much.
    Chairman Harris. Thank you.
    And before we adjourn, Assistant Secretary Sandalow, I 
think you wanted to answer the Congressman from California, who 
subsequently left, but if you want, I will give you 30 seconds 
or a minute to address the issue of what if we don't.
    Hon. Sandalow. Well, thank you, Mr. Chairman. I did. I 
appreciate that very much. I just wanted to say, first, it is 
an important question that the Congressman was asking, I think 
and I agree with much of what was said here. I think if we 
don't address this set of issues, we are going to face problems 
in terms of the availability of certain products, potentially 
problems in terms of the cost of certain products, and problems 
in terms of job creation and technology development, and those 
are all important, you know, very important issues. At DOE, we 
haven't done the kind of overall economic analysis, so I don't 
mean to be speaking to an overall economic analysis, but there 
is no question that there are serious issues here. I mainly 
wanted to make the point that these are issues that we can 
solve. These are issues we can address. We have done that in 
the past, by pulling together, by smart policy, by the right 
types of investments, by following policies like finding new 
sources of supply, developing substitutes and recycling. We 
have overcome challenges like that, and I believe we can do 
that again.
    Chairman Harris. Thank you, and I share your optimism. I 
think we will have a bipartisan product of the Committee that 
will address that.
    I want to thank the witnesses for their valuable testimony 
and the members for their questions. The members of the 
Subcommittee may have additional questions for the witnesses, 
and we will ask you to respond to those in writing. The record 
will remain open for two weeks for additional comments from 
members.
    The witnesses are excused and the hearing is adjourned.
    [Whereupon, at 11:43 a.m., the Subcommittee was adjourned.]
                                Appendix

                              ----------                              


                   Answers to Post-Hearing Questions




                   Answers to Post-Hearing Questions
Responses by The Honorable David Sandalow,
Assistant Secretary for Policy and International Affairs,
 Department of Energy

Questions Submitted by Chairman Andy Harris

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Responses by Dr. Derek Scissors,
Research Fellow, Heritage Foundation

Questions Submitted by Chairman Andy Harris

Q1.  General Electric's research begun in 2005 is often cited as an 
example of a company proactively responding to potential supply 
shortages for critical materials. Is there reason to believe a similar 
course would not be pursued by other affected industries, such as the 
automobile or wind turbine industries?

A1. This course is already being pursued. Companies such as Umicore are 
altering their research paths in response to changing prices. In wind 
turbines, for example, Boulder Wind Power has developed a technology 
using more readily available neodymium rather than dysprosium. In 
autos, Toyota and General Motors are improving induction motors that 
reduce the use of critical elements. And so on.
    More broadly, recall that rare earths became commercially valuable 
materials in the 1970's, when GM and Sumitomo responded to supply 
disruptions of then-strategic minerals. What we now consider critical 
materials are not timeless and irreplaceable. Their role is the result 
of powerful and long-term private sector innovation. That innovation 
will inevitably continue to change what is deemed critical, unless the 
government gives in to short-term concerns and chills natural 
technological progress.

Q2.  Unfortunately, one of the major impediments to market stability in 
energy critical elements is the monopolistic tendencies of Chinese 
trade policy and a demonstrated willingness to leverage their monopoly 
position for geopolitical advantage and drive American companies out of 
business. As such, what other policy actions (WTO, currency 
legislation, stockpiling, etc.) should the Congress consider to 
mitigate the impact of these actions?

A2. With regard to a stockpile, Chinese predatory behavior is one 
factor in the decision. The US should absolutely consider supplies from 
the PRC to be at risk. However, stockpiling is only effective if the 
correct elements are available when needed. For ECE's, this assessment 
must frequently be redone, as supply and demand rapidly shift. A 
traditional stockpile, as in oil, would not be useful.
    The most obvious recommendation is to pursue a WTO case concerning 
restrictions on rare earth exports. Given blatant violations of WTO 
principles by Chinese state firms, this case should be easy to win. 
While full implementation of WTO decisions is a lengthy process, the 
initial favorable decision would permit the US to retaliate, perhaps on 
China-made goods using rare earths. This will discourage Chinese 
predation to some extent. One hopeful note: Chinese measures often 
backfire. The PRC did not even fill its export quota for rare earths in 
2011 as demand for Chinese output weakened.
    Beyond the WTO case, a complex but vital trade issue concerns 
subsidies. Large Chinese rare earth miners are all state-owned and 
receive heavy subsidies. The most relevant such subsidy is protection 
from competition, with the central government explicitly driving non-
state producers out of the market. The first step in responding to 
these subsidies is a comprehensive assessment of their size and any 
harm inflicted on the U.S. To mitigate actions based on China's near-
monopoly position, the US must document and counter the tools through 
which this position was established. Suppression of competition in the 
Chinese domestic market tops the list.
    The other way to fundamentally undermine the Chinese position is to 
permit the American market to expand. This can be most quickly and 
efficiently started by permitting more land to be surveyed for possible 
ECE deposits. As with stockpiles, Chinese behavior is only one factor 
in this decision.

Q3.  Energy Critical Elements are well-known to be of significant 
importance to certain defense applications such as jet engines and 
weapons systems. How is the Department of Defense working to address 
potential national security-related challenges, and how should (or are) 
these efforts coordinated with those supported by DOE?

A3. I am not the best person to assess DOD efforts or DOD-DOE 
coordination. True national security requirements should take priority 
over market imperatives while industrial policy should not, so it may 
not be possible to effectively coordinate DOD and DOE initiatives. A 
guiding objective for DOD should be to try to project military demand 
for ECE's against supply projections, to avoid surprises. DOD should 
not simply treat all ECE's as critical to future military equipment.

Q4.  Dr. Scissors, you note your support for targeted government 
resource assessments and information gathering associated with Energy 
Critical Elements. What specific information is most important for the 
federal government to provide to energy critical element market 
participants?

A4. The ECE market involves, both at home and overseas, information 
concerning land and resources that can only be provided by national 
governments. The market is also shifting rapidly. As a result, the most 
valuable information at present is quite basic in nature. It is 
important that this information be provided reliably and repeatedly.
    The definition of ECE should be broad and flexible, anticipating 
change. For all classified ECE's, the government should initially work 
to provide the most recent information concerning:

    1.  Total world output and output change
    2.  Output and change in output by country
    3.  Total world demand and demand change
    4.  Demand and change in demand by country
    5.  Demand and change in demand by industry
    6.  Total world known deposits and change in known deposits
    7.  Total world estimated deposits and change in estimated deposits
    8.  Known deposits and change in known deposits by country
    9.  Estimated deposits and change in estimated deposits by country
    10.  Price trend using a standardized measure and benchmark
Responses by Dr. Robert Jaffe,
Jane and Otto Morningstar Professor of Physics,
Massachusetts Institute of Technology

Questions Submitted by Chairman Andy Harris

Q1.  General Electrics research begun in 2005 is often cited as an 
example of a company proactively responding to potential supply 
shortages for critical materials. Is there reason to believe a similar 
course would not be pursued by other affected industries, such as the 
automobile or wind turbine industries?

A1. I believe that GE's situation was unusual, almost unique: it had 
appreciated for many years the importance of rhenium to its turbine 
business and made it a high priority to gather information on U.S. and 
world production and reserves. Because of the proprietary value that 
individual companies would place on this kind of information and on 
their research, it seems quite unlikely that ``industries'' would 
respond collaboratively as your question suggests. Instead a few big 
players might have the long term perspective, the vision, and the 
resources to commit to a similar strategy, while most would not. 
Entrepreneurial startups and small businesses would be at a particular 
disadvantage.
    I should mention that the number of individual chemical elements 
that might be important to a given emerging technology would likely be 
quite large. Instead of tracking one element, rhenium, as described in 
the GE case, a company might be confronted with the daunting task of 
tracking many.
    This is the kind of information gathering activity that has 
typically been recognized as a legitimate function of the Federal 
Government, as illustrated by the Bureau of Labor Statistics or the 
Energy Information Administration.

Q2.  Unfortunately, one of the major impediments to market stability in 
energy critical elements is the monopolistic tendencies of Chinese 
trade policy and a demonstrated willingness to leverage their monopoly 
position for geopolitical advantage and drive American companies out of 
business. As such, what other policy actions (WTO, currency 
legislation, stockpiling, etc.) should the Congress consider to 
mitigate the impact of these actions?

A2. The APS/MRS study focused primarily on medium to long-term 
approaches to ECE problems, so my perspective on these issues is 
somewhat limited. Our committee did agree that the U.S. should take all 
appropriate actions under bilateral and multilateral trade agreements 
and through the WTO. We observed, however, that the time scale for 
addressing issues in these forums is often too long to have an impact 
on the crisis of the moment (one more reason for taking a longer term 
perspective). We advocated for free international trade in general, but 
did not discuss currency manipulation. Finally, we recommended against 
federal stockpiling for economic reasons1 for several reasons. First it 
often has unintended and unforeseeable economic consequences; second, 
it interferes with free markets in a particularly crude way; and third, 
individual companies have the capacity to stockpile according to their 
own needs.
    Our report recommended a triad of information, research, and 
recycling to anticipate problems before they become critical. 
Unfortunately, by the time an individual event has reached the 
proportion of the ``rare earth crisis'', the government's arsenal is 
rather limited.
Responses by Dr. Karl Gschneidner,
Senior Materials Scientist,
Ames National Laboratory

Questions Submitted by Chairman Andy Harris

Q1.  Unfortunately, one of the major impediments to market stability in 
energy critical elements is the monopolistic tendencies of Chinese 
trade policy and a demonstrated willingness to leverage their monopoly 
position for geopolitical advantage and drive American companies out of 
business. As such, what other policy actions (WTO, currency 
legislation, stockpiling, etc.) should the Congress consider to 
mitigate the impact of these actions?

A1. Yes, there are some other actions Congress should carry out. But 
before I present my suggestions we need to understand the Chinese 
strategy regarding rare earths.
    The supply of the basic rare earth materials in the Rest of the 
World (ROW) is close to being ameliorated with Molycorp (in the USA), 
Lynas (Australia) and other smaller mining operations in the USA, 
Canada and South Africa in (or coming into) operation. The post-mining 
manufacturers and related infrastructure is practically non-existent in 
the ROW, Japan is probably ahead of the USA and Europe in this regard. 
We need to re-establish this portion of the rare earth industry. It is 
absolutely necessary to do so from both a military and energy security 
posture. But if we can build up this manufacturing capability to supply 
computers, magnetic devices, electric motors, cell phones, i-pods, etc. 
for the general public the money will be spent in the USA and not sent 
to China.
    My first three recommendations are: (1) that we make government 
guarantee loans available to these companies to become established; (2) 
make favorable tax incentives at the federal, state and local levels; 
and (3) place import restrictions (quotas, taxes, etc.) on rare earth 
containing products coming from China.
    In order to re-establish the USA's rare earth intellectual capital 
and keep us competitive, it is imperative to educate and train the next 
generation of scientists, engineers, technical business managers for 
our rare earth industry, especially the post mining manufacturers. This 
requires 60 to 110 Ph.D., M.S. and B.S. degree students per year for 
the next 10 years. In order to carry this out: educational institutions 
need to teach semester long courses and short courses on various 
aspects of the rare earths both locally and via distance learning; 
federal government research organizations, such as NSF, DOE, DoD, and 
NIST, need to fund research projects involving rare earth science and 
technology; and a National scholarship program needs to be established 
to assist students to obtain and complete their education.
    My fourth recommendation is: the establishment of national rare 
earth scholarships to be administered by the Energy Innovation Hub on 
Critical Materials authorized by Congress on December 2, 2011.
    The Chinese are restricting the supply of the basic rare earth 
materials (concentrates, metals, magnets, etc.) to the Rest of the 
World (ROW), but not the commodities (i-phones, TVs, audio systems, 
cell phones, components which go into automobiles, computers, lighting, 
etc.) which utilize the rare earths. The Chinese want to sell the high 
value products (i-phones, TVs, etc.) and therefore, will continue to 
supply them to consumers in ROW and also internally in China itself.
    However, I foresee real problems further down the road, five to ten 
years from now, when we have rebuilt the post-mining manufacturing 
infrastructure. Putting the manufactured electronic products, magnets, 
electric motors, CFL and LED lamps, computers, etc. in the consumer 
market will be in direct competition with the equivalent products from 
China. China is not going to let these markets slip out of their 
hands--they will do most anything to retain them and earn hard 
currency, which could include cutting prices below their costs and thus 
dumping these products in the marketplace. This will be the next 
battlefield--it will be a very competitive period, and we cannot fail, 
we cannot let them drive our companies out of business. From military 
and energy security needs we need these US manufacturers in the time of 
military conflict--who would produce the various devices that the 
country needs in a reasonable time scale?
    How can we compete with the Chinese with their low labor costs and 
centrally controlled economy? Automate-Automate-Automate our 
manufacturing processes; maintain our intellectual and patent rights, 
and our trade and corporate secrets; and finally send our components to 
South and Central American countries to be assembled into the final 
products taking advantage of the lower labor costs in these nations.
Responses by Mr. Luka Erceg,
President and CEO, Simbol Materials

Questions Submitted by Chairman Andy Harris

Q1.  Unfortunately, one of the major impediments to market stability in 
energy critical elements is the monopolistic tendencies of Chinese 
trade policy and a demonstrated willingness to leverage their monopoly 
position for geopolitical advantage and drive American companies out of 
business. As such, what other policy actions (WTO, currency 
legislation, stockpiling, etc.) should the Congress consider to 
mitigate the impact of these actions?

A1-a. Free trade practices must be paired with support for strategic 
domestic industries

    The U.S. has long been the leader in fostering free-trade 
throughout the world, and simultaneously, our companies have exported 
many technologies. Our policies have now come full circle--we have 
invested abroad in countries with a comparative advantage in many 
resources (labor, natural resources, etc.). Those countries have now 
rapidly increased their standards of living for their citizens and have 
developed industries in areas where the U.S. previously exerted 
leadership, taking jobs from U.S. Citizens. Employment in the chemical 
and mining industries, for example, is down by more than 30% the past 
20 years. Critical aspects of the U.S. industrial commons--the skills 
shared by a large, interlocking group of supply-chains, universities, 
and government that has been central to U.S. technological leadership--
has lost its vitality as materials suppliers and production factories 
have moved abroad. The issue is significant as many of the advanced 
technologies, such as electric vehicles, solar, wind, LED lighting, 
rely on materials that are increasingly complex and produced overseas.
    The answer, however, is not one of protectionism. Rather, it is to 
demand respect of the WTO standards and to make far greater use of the 
WTO Agreement to rebuild our domestic industries. The United States 
along with its partners in Japan and the European Union should 
vigorously pursue WTO dispute settlement. Congress should appropriate 
all funds necessary for the Office of the United States Trade 
Representative and the newly created Trade Enforcement Unit to litigate 
against distortive export quotas and export duties that constitute an 
implicit assistance to domestic producers and downstream processors, 
providing them with an unfair competitive advantage. Unless we take 
measures that permit U.S. industries to rebuild, we will continue to be 
a nation of importers.
    We must stop the altruism of sacrificing our industries and jobs 
for the sake of free trade, rather, we must take up ``fair trade.'' 
American ingenuity stands toe-to-toe with the best in the world. All 
that is needed is a level playing field.

A1-b. Monopolistic tendencies of Chinese trade policies

    Unfortunately, monopolistic tendencies are not limited to just 
China, although it does provide ample evidence. The issue really is 
whether the monopolistic tendencies are actually a ``wrongful act.'' 
Unfortunately, due to our reliance on the WTO, it is far too easy to 
argue pursuant to the WTO's conservation provisions, such as found in 
Article XX of the WTO Agreement, which provide ample protection for 
countries such as China. Even if their acts are wrongful, the time it 
takes to bring a WTO case is such that American industries will suffer 
inordinately.
    Pursuant to Article XIX of the WTO Agreement, the U.S. government 
could take emergency action to safeguard domestic industry. Let us take 
manganese or rare earths as an example. The U.S, the European Union, 
and Mexico in their formal request to the WTO for dispute settlement 
noted that Chinese export restraints on raw materials significantly 
distort the international market and provide preferential conditions 
for Chinese industries that use these raw materials. The U.S. 
Government could implement import duties pursuant to Article XIX to 
protect U.S. Industries. However, who would that really help? The irony 
is that many of the customers of these products are located abroad, and 
in fact could be U.S. Customers. So the question next becomes to which 
products do you apply duties --the raw materials or the finished goods? 
Neither are produced in the U.S. today. In the case of manganese, 
duties will work because there is a domestic industry for refined 
chemical products. However, there is not for manganese ore or manganese 
metal.
    My recommendation would be to take a position of supporting 
critical industries and making use of treaty safeguards and laws as 
necessary. Should domestic production be revived, the United States 
antidumping and countervailing duty laws could be used to combat a 
repeat of underselling by Chinese producers. However, the underlying 
problem is that we do not encourage enough manufacturing in the U.S. 
This is consequently causing shortages of talented persons.

A1-c. Manufacturing (not stockpiling) will provide us with innovation 
bonds and long-term competitiveness

    It is my opinion that stockpiling of materials is akin to the early 
failures of aid to under-developed nations. In the past, we provided 
food aid which was a short-term stimulus to those in need, but once the 
food was gone the situation reversed itself. Aid was most successful 
when we taught under-developed nations to grow their own food -- it is 
time to teach the U.S. how to manufacture and support those endeavors. 
This century we saw U.S. leadership in the production of raw materials 
fall and shift to other nations. This was driven by taxation and 
permitting.
    We next saw U.S. manufacturing leadership fall and shift overseas 
-- notably following raw material production. This occurred because of 
anticompetitive trade policies of nations such as China that required 
that raw materials be processed into finished products in their 
countries. In the U.S., such tied relationships are considered in 
violation of our competition laws and are illegal. Why do we tolerate 
them with trading partners? This was driven by high labor costs and 
taxation. Once manufacturing left, so too did innovation.
    Manufacturing and innovation are intimately related. The erosion of 
our economy is abundantly clear -- loss of raw material production, led 
to loss of specialty materials, led to loss of manufacturing. Without 
jobs, students do not enroll in university programs as there is no 
gainful employment for them in this country; hence they shift to other 
studies. Only 15.6 percent of U.S. bachelor's degrees were awarded in 
science technology and engineering (STEM) during 2010. Once the 
education system stops offering courses, educators stop conducting 
research and thus innovation begins to wane. China now leads the world 
in materials science publications, overtaking Japan and the U.S., and 
currently challenging the combined output of the EU-15 group of well-
established European research economies While the demand for innovation 
has increased, government sponsored research has actually declined as a 
share of GDP. In one generation, we lost tremendous headway in multiple 
disciplines. It is perhaps not surprising that many emerging 
industries, such as solar-panels, and LED-lighting industries that have 
their roots in the U.S. semiconductor materials commons, are now mostly 
based in Asia. The erosion must stop.
    Approximately 20 years ago, lithium-ion battery technology was 
invented in the United States. Today, the U.S. is not consequential to 
the world market for lithium-ion technologies. Some of the battery 
related investments made through ARRA funds were deployed for end-use 
assembly of battery and their components. We missed the opportunity to 
invest in materials capability that is at the head of the innovation 
supply-chain and the foundation for a competitive industrial base. This 
is not a criticism, rather an example of how much more we must do to 
foster education, innovation, and manufacturing in the United States.
    Today, the U.S. falls woefully short in its ability to produce raw 
materials and to manufacture specialty / critical materials. U.S. 
companies must be given an opportunity to be competitive. Today, we 
face the highest labor costs, the most difficult permitting regimes, 
strictest environmental standards, the highest taxes, and lack of 
sufficient training in industries of strategic importance to the U.S. 
economy. Any one of the impediments aforementioned is daunting to 
overcome, let alone all. In no way do I suggest that environmental 
standards be lessened, or an elimination of permits. Rather, our 
governance slows the ability of U.S. Industry to act and respond, 
rather than encouraging it. Permitting must be transparent and rapid 
for manufacturing. Environmental standards must be predictable. Being 
competitive is not about lowering the pay of U.S. workers, rather, 
being competitive is about productivity. We need to encourage the 
optimization of labor, capital, and natural resources--the basic 
implements to the economy. That is manufacturing, and manufacturing of 
critical materials.
    We suffer from a tax regime that has encouraged off-shoring of 
manufacturing and many other jobs. There is evidence that without such 
tax benefits related to repatriation of income, there would be no 
incentive to off-shore jobs. It is further worth noting that the 
research tax subsidy in the United States is only about half of that 
available in such technology strongholds as Japan. It is imperative to 
support the development of manufacturing supply chains in the U.S. But, 
merely providing acute stimuli will do little as we do not address the 
underlying problems. History has shown that nations are strongest when 
they manufacture. This has the advantage of reducing imports, or 
alternatively increasing exports to balance trade. Strengthening in our 
trade position improves the strength of the U.S. dollar. Only support 
of manufacturing will provide the solution.
    Critical materials play a special role in our economy. Critical and 
specialty materials are the building blocks to advanced technologies, 
even such as solar panels, EV batteries, magnets for wind turbines, 
handheld consumer electronics, etc. Material innovation will lead to 
substantial R&D, innovation, commercialization, and job creation.
    I respectfully submit to the committee, that without reducing 
taxes, providing incentives for manufacturing in general and more 
specifically to specialty materials producers, and supporting 
education, we cannot counter the monopolistic tendencies of other 
nations. By providing the incentive to increase U.S. based 
manufacturing, we will encourage companies to invest in training and 
collaboration with educational and research institutions. This will 
then foster more technical developments that will strengthen our 
ability to compete and lead.
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