Summary

The scale of mobilization and technological advancement required to avoid the worst effects of climate change has recently led U.S. politicians to invoke the need for a new, 21st century “moonshot.” The Obama Administration launched the SunShot Initiative to dramatically reduce the cost of solar energy and, more recently, the Department of Energy (DOE) announced a series of “Earthshots” to drive down the cost of emerging climate solutions, such as long-duration energy storage.

While DOE’s Earthshots to date have been technology-specific and sector-agnostic, certain heavy industrial processes, such as steel and concrete, are so emissions- intensive and fundamental to modern economies as to demand an Earthshot unto themselves. These products are ubiquitous in modern life, and will be subject to increasing demand as we seek to deploy the clean energy infrastructure necessary to meet climate goals. In other words, there is no reasonable pathway to preserving a livable planet without developing clean steel and concrete production at mass scale. Yet the sociotechnical pathways to green industry – including the mix of technological solutions to replace high-temperature heat and process emissions, approaches to address local air pollutants, and economic development strategies – remain complex and untested. We urgently need to orient our climate innovation programs to the task.

Therefore, this memo proposes that DOE launch a Steel Shot to drive zero-emissions iron, steel, and aluminum production to cost-parity with traditional production within a decade. In other words, zero dollar difference for zero-emissions steel in ten years, or Zero for Zero in Ten.

Challenge and Opportunity

As part of the Biden-Harris Administration’s historic effort to quadruple federal funding for clean energy innovation, DOE has launched a series of “Earthshots” to dramatically slash the cost of emerging technologies and galvanize entrepreneurs and industry to hone in on ambitious but achievable goals. DOE has announced Earthshots for carbon dioxide removal, long-duration storage, and clean hydrogen. New programs authorized by the Infrastructure Investment and Jobs Act, such as hydrogen demonstration hubs, provide tools to help DOE to meet the ambitious cost and performance targets set in the Earthshots. The Earthshot technologies have promising applications for achieving net-zero emissions economy-wide, including in sectors that are challenging to decarbonize through clean electricity alone.

One such sector is heavy industry, a notoriously challenging and emissions-intensive sector that, despite contributing to nearly one-third of U.S. emissions, has received relatively little focus from federal policymakers. Within the industrial sector, production of iron and steel, concrete, and chemicals are the biggest sources of CO2 emissions, producing climate pollution not only from their heavy energy demands, but also from their inherent processes (e.g., clinker production for cement). 

Meanwhile, global demand for cleaner versions of these products – the basic building blocks of modern society – is on the rise. The International Energy Agency (IEA) estimates that CO2 emissions from iron and steel production alone will need to fall from 2.4 Gt to 0.2 Gt over the next three decades to meet a net-zero emissions target economy-wide, even as overall steel consumption increases to meet our needs for clean energy buildout. Accordingly, by 2050, global investment in clean energy and sustainable infrastructure materials will grow to $5 trillion per year. The United States is well-positioned to seize these economic opportunities, particularly in the metals industry, given its long history of metals production, skilled workforce, the initiation of talks to reach a carbon emissions-based steel and aluminum trade agreement, and strong labor and political coalitions in favor of restoring U.S. manufacturing leadership.

“The metals industry is foundational to economic prosperity, energy infrastructure, and national security. It has a presence in all 50 states and directly employs more than a half million people. The metals industry also contributes 10% of national climate emissions.”

Department of Energy request for information on a new Clean Energy Manufacturing Institute, 2021

However, the exact solutions that will be deployed to decarbonize heavy industry remain to be seen. According to the aforementioned IEA Net-Zero Energy (NZE) scenario, steel decarbonization could require a mix of carbon capture, hydrogen-based, and other innovative approaches, as well as material efficiency gains. It is likely that electrification – and in the case of steel, increased global use of electric arc furnaces – will also play a significant role. While technology research funding should be increased, traditional “technology-push” efforts alone are unlikely to spur rapid and widespread adoption of a diverse array of solutions, particularly at low-margin, capital-intensive manufacturing facilities. This points to the potential for creative technology-neutral policies, such as clean procurement programs, which create early markets for low-emissions production practices without prescribing a particular technological pathway.

Therefore, as a complement to its Earthshots that “push” promising clean energy technologies down the cost curve, DOE should also consider adopting technology-neutral Earthshots for the industrial sector, even if some of the same solutions may be found in other Earthshots (e.g., hydrogen). It is important for DOE to be very disciplined in identifying one or two essential sectors, where the opportunity is large and strategic, to avoid creating overly balkanized sectoral strategies. In particular, DOE should start with the launch of a Steel Shot to buy down the cost of zero-emissions iron, steel, and aluminum production to parity with traditional production within a decade, while increasing overall production in the sector. In other words, zero dollar difference for zero-emissions steel in ten years, or Zero for Zero in Ten.

The Steel Shot can bring together applied research and demonstration programs, public-private partnerships, prizes, and government procurement, galvanizing public energy around a target that enables a wide variety of approaches to compete. These efforts will be synergistic with technology-specific Earthshots seeking dramatic cost declines on a similar timeline.

Plan of Action

Develop and launch a metals-focused Earthshot: 

• Design and announce the Steel Shot in close partnership with industry, labor, and communities. DOE should hold a series of roundtables with industry, labor, and communities to define and calculate the gap between zero-emissions and traditional production, often called the “green premium,” for clean steel and aluminum. This should incorporate measures to achieve near-zero carbon dioxide emissions as well as deep reductions in other harmful air and water pollutants to achieve a “Zero for Zero in Ten” goal – zero dollar difference for zero emissions steel within one decade. DOE should launch the Steel Shot with pledges from major steelmakers and steel purchasers, such as automakers.

• Calculate targets along the way to the decadal goal and define how success will be measured. After launching the new Earthshot, DOE should release a Request for Information (RFI) and use an initial Steel Shot Summit to compile projections for anticipated cost parity milestones along the way to the decadal target. DOE should plan to update assessments of the current “green premium” on a regular basis to ensure that research, development, and demonstration efforts are targeted at continued reductions in the cost of clean steel – not just improvements over the original baseline. To assess the emissions footprint of various steel production processes, DOE should work closely with the White House’s Buy Clean Task Force, which was tasked with developing recommendations for improving transparency and reporting around embodied emissions, particularly through environmental product declarations.

• Hold an annual Steel Shot Summit to bring together technologists, industry, and financiers to share solutions and develop projects. DOE should hold an annual Steel Shot event to help to highlight existing innovation efforts underway and connect stakeholders. This summit will build on existing Eartshot stakeholder gathering efforts underway, such as the Hydrogen Shot Summit and the Long Duration Storage Shot Summit.

Invest in domestic clean steelmaking capacity:

• Stand up the seventh Clean Energy Manufacturing Institute with funding for cooperative applied R&D and a demonstration facility. Last year, AMO put out a Request for Information on the establishment of a seventh Manufacturing USA institute on industrial decarbonization. The RFI had a particular focus on metals manufacturing. In 2022, DOE should formally issue a funding opportunity for the institute, with a requirement that the institute conduct cooperative R&D in industrial decarbonization practices and operate a manufacturing demonstration and workforce development facility for low- and zero-emissions manufacturing processes.

• Launch an annual competition for entrepreneurs and companies demonstrating low- and zero-emissions processes that reduce the green premium. Modeled after the SunShot’s American Made Solar Prize, AMO could issue a series of smaller-scale prize competitions targeted at challenges for clean metals. Prizes are particularly effective for challenges where the desired end target is defined and clearly measurable, but the optimal solution to achieve this target is not yet known. The variety of potential solutions for steel decarbonization makes the sector an excellent candidate for a prize program with multiple rounds and awardees. DOE could consider subprograms within the Steel Shot prize that align with reducing key sources of emissions – EPA identifies the three sources of emissions as 1) process emissions, 2) direct fuel combustion, and 3) indirect emissions from electricity consumption.

• Pass legislation to directly invest in deployment of commercial-scale solutions. While a prize program can promote prototype and pilot-stage technologies, real-world demonstration and deployment will buy down the cost of clean steel. These investments should pursue a range of decarbonization opportunities across blast-oxygen furnaces, electric arc furnaces, and emerging direct reduction approaches. They should also ensure that federal funds go to projects with strong labor standards, building on a long legacy of quality U.S. steelmaking jobs. The original American Jobs Plan released by President Biden proposed ten “pioneer facilities” to demonstrate clean industrial processes, including steel. Several proposals included in House-passed bills, such as the Build Back Better Act and the America COMPETES Act, would provide new authorities to DOE to fund commercial-scale retrofits and first-of-a-kind facilities employing clean steelmaking technologies. For instance, an amendment to America COMPETES expands the industrial decarbonization RD&D program authorized in the Energy Act of 2020 to include “commercial deployment projects.” Should these provisions pass, they can be leveraged to rapidly retrofit facilities and achieve the goals of the Steel Shot.

Create demand for “green steel” through market pull mechanisms:

• Match innovators and steelmakers with private purchasers to generate demand for clean metals. Demand-pull incentives can reduce risk for U.S. steelmakers and move the innovations that emerge from DOE R&D and prize programs into commercial adoption, which is critical for additional “learning-by-doing” at scale. DOE can work with domestic industries that are major purchasers of steel to develop sector-based advanced market commitments as part of the Earthshot launch. For instance, DOE should leverage its relationships with major automakers with ambitious climate goals, such as Ford and GM, to spur auto sector commitments to purchasing clean steel. In developing these advanced market commitments, DOE can work with the First Movers Coalition, a consortium of private sector buyers of innovative, clean products, launched by the State Department and the World Economic Forum in Glasgow in 2021. They included both steel and aluminum in their initial round of target products. 

• Use federal procurement power to favor “green steel” for government-funded projects, including infrastructure and defense. AMO and DOE’s Federal Energy Management Program should advise the General Services Administration, Department of Defense, Department of Transportation, and other major federal procurers as they execute federal sustainability plans and procurement working groups, including the Buy Clean Task Force announced in December 2021. For instance, DOE can utilize the Earthshot to provide recommendations on reasonable costs for steel included in a Buy Clean program, and provide technical assistance to innovators to access federal clean procurement efforts.

Summary

Congress, the White House, and federal agencies are growing increasingly concerned about the decline in U.S. industrial leadership. The emergence of China’s industrial dominance and the supply chain challenges exacerbated by the Covid pandemic have opened a political window of opportunity. With the Infrastructure Investment and Jobs Act, as well as pending U.S. competitiveness legislation, Congress and the White House are poised to direct significant investments to regions that have suffered from the decline of legacy industries, ranging from the Rust Belt to coal communities. Innovative energy technologies are at the center of this effort. Not only will clean energy supply chains be necessary for the U.S. to rise to the climate challenge, but they have emerged as the main battleground in global industrial competitiveness, as major economies around the world make significant investments in renewables, electric vehicles, and emerging technologies like clean hydrogen. 

There are a range of interventions underway across federal agencies to strengthen U.S. manufacturing and promote regional economic and workforce development. The Department of Energy (DOE) is a key player in fostering innovative manufacturing ecosystems around clean energy technologies and low-carbon industries. 

For nearly half a century, DOE’s State Energy Program (SEP) has supported state leaders as they plan for a clean energy future. However, a resilient, secure, and prosperous clean energy economy increasingly demands investments in advanced energy manufacturing and supply chains. This memo proposes that the Administration update SEP to the State Energy and Manufacturing Program (SEMP), and outlines a specific set of reforms — many of which fall within existing program authorities — that will empower states and regions to foster a strong clean energy manufacturing base and enhance U.S industrial leadership.

Challenge and Opportunity

This Administration and Congress have identified regional innovation as a critical area to advance U.S. competitiveness and economic revitalization. This regional approach is woven throughout the bipartisan Infrastructure Investment and Jobs Act (IIJA), which includes regional hubs for clean hydrogen and other emerging technologies; the U.S. Innovation and Competition Act (and its House companion, the America COMPETES Act), which includes funding for regional innovation clusters; the Build Back Better Regional Challenge funded under the American Rescue Plan, which devotes $1 billion to revitalizing regions suffering from disinvestment; the Interagency Working Group on Coal and Power Plant Communities and Economic Revitalization; and the White House’s supply chain and industrial decarbonization efforts.

These investments also recognize that global growth sectors align with decarbonization. Despite U.S. leadership in R&D for solar photovoltaics, electric vehicles, advanced nuclear reactors, and more, the U.S. has failed to retain significant domestic manufacturing capacity for the energy technologies of the future, posing risks to middle-class jobs, energy security, and climate action in the years ahead. 

Today, China owns 80 percent of the solar supply chain, produces roughly half the globe’s electric vehicles, and leads the world in clean energy investments, spending more than double that of the U.S. While major announcements from U.S. automakers in the past year have brought hope of American electric vehicle leadership, other clean energy industries are struggling in the absence of U.S. manufacturing incentives. 

DOE’s recent supply chain report highlights the need to “leverage regional assets, including resources and workforce development, to support the creation and expansion of industrial clusters” and identifies a range of avenues to provide regional technical assistance. It also states that DOE should “consider whether new authority is needed to enable federal awards, matching grants, direct loan, and loan guarantees to support creation of these clean energy manufacturing clusters and leverage existing public programs (federal, state, local) for regional innovation and manufacturing ecosystems.”

One existing program which could be leveraged in this effort is the State Energy Program (SEP). SEP was authorized by the Energy Policy and Conservation Act of 1975, passed in response to the energy crises of the 1970s. The program has historically provided cost-shared technical assistance to states to aid in energy conservation planning, as well as some limited financial assistance (i.e., revolving loan funds) for states to increase energy efficiency and clean energy in public operations, such as municipal buildings and schools. The program has five goals:

• Increase the energy efficiency of the U.S. economy; 

• Implement energy security, resiliency, and emergency preparedness plans;

• Reduce energy costs and energy waste;

• Increase investments to expand the use of energy resources abundant in states; and

• Promote economic growth with improved environmental quality.

SEP is considered highly effective, with a leverage ratio of 1:11 between federal and non-federal (including private) funds, annual energy cost savings of $7 for every $1 spent, and hundreds of thousands of students educated in energy efficiency.

Congress and DOE have proposed expansions to the scope, scale, and targeting of SEP in the past (see FAQ #2). These increases in funding and prioritization for low-income and environmental justice communities are well-warranted given the SEP’s strong track record and high return-on-investment, but so too should the scope of funds be updated to reflect our modern supply chain challenges. Energy supply chains and clean U.S. manufacturing have become bipartisan priorities and critical elements of meeting U.S. climate goals.

In the absence of additional support for regional clean energy supply chains, it is highly likely that the U.S. will continue to cede ground to foreign competitors in the energy technologies of the future and grow increasingly reliant on materials manufactured abroad. This poses risks to our ability to mitigate climate change, ensure energy security and national security, and capture the economic benefits of the clean energy revolution. It also is likely to inhibit energy innovation, as regional manufacturing clusters promote “learning-by-doing” and drive advances in material sciences and processes that are simply not possible to achieve in the lab. Finally, maintaining a narrow focus on energy conservation could limit the ability for all states to plan effectively for the clean energy future and develop comparative advantages; even after accounting for population, states do not participate evenly in all aspects of the program based on their needs, interests, and capabilities (see ORNL program evaluation, Figures 3-32). An expanded mandate could increase uptake of the program among states that may have a strong manufacturing base but have been unable to maximize the benefits of a program with a more narrow scope.

Therefore, DOE should leverage its existing authority to rename the program to the State Energy and Manufacturing Program (SEMP) and expand technical and financial assistance to include clean energy supply chain planning. At the same time, Congress should reauthorize, update, and increase funding for the program to ensure states have the ability to develop robust regional clean manufacturing hubs. As domestic clean energy supply chains emerge as a critical element of the national climate, manufacturing, and jobs agenda, this remains pursuant to the program’s goals of promoting energy security, resilience, and economic growth.

Plan of Action

The following action plan includes both executive and legislative actions to update SEP to enable states to plan for and develop a strong U.S. manufacturing base for clean energy. These actions should be implemented in Program Year 2023, with new program guidance issued in early 2023.

Recommendation 1. Make manufacturing an explicit goal of SEP and begin providing technical assistance for clean energy supply chain and manufacturing planning.

Manufacturing is critical to the program goals of energy security, resilience, and economic growth. To indicate its expanded mission, DOE should update the name of SEP to the “State Energy and Manufacturing Program (SEMP)” and begin providing technical assistance to support local and state clean energy supply chains and manufacturing capacity. While Congress should codify this goal, DOE can begin today by leveraging existing authorities like the Energy Technology Commercialization Services Program (42 U.S. Code § 6322(f)). This optional program helps small businesses and start-ups manufacture clean energy technologies (see FAQ #1). DOE can also consider whether to reinstate Renewable Energy Market Development programs, which under the American Recovery and Reinvestment Act (ARRA) covered efforts to “develop or expand existing manufacturing capacity for renewable energy equipment and components and support development of specific renewable energy facilities.” 

Recommendation 2. Extend eligibility of technical assistance to consortia of states to support regional planning. 

SEP is an arrangement between DOE and designated state energy offices. DOE should foster regional clean manufacturing ecosystems by issuing new program guidance that enables states to submit collaborative energy plans, particularly for optional plan components. 

Recommendation 3. Increase scale of funding and expand funding mechanisms. 

To enable more robust utilization of existing programs and expansion to manufacturing activities, Congress should increase overall funding for core SEMP activities to roughly $400 million per year (not including additional funding for challenge grants), commensurate with levels proposed by Congress in the CLEAN Future Act (see FAQ #2). Additionally, Congress should explicitly include clean energy and low-carbon manufacturing planning within the core SEMP planning and technical assistance process, and create a new revolving loan fund, the State Advanced Energy Manufacturing Fund, to provide additional financial support to states to use on manufacturing projects. As with SEP’s existing revolving loan fund for building efficiency, these funds could be distributed once the state has “demonstrated a commitment” to promoting clean energy manufacturing through state and private efforts.

Recommendation 4. Direct states to consider opportunities to coordinate with the Department of Commerce, Regional Commissions, and other DOE-led manufacturing initiatives. 

Several federal government programs, including the Economic Development Administration and Appalachian Regional Commission, already focus heavily on regional development strategies, which tend to consider advanced manufacturing opportunities. There are several existing DOE-led and DOE-adjacent initiatives that contribute to this mission as well, including DOE’s Advanced Manufacturing Office, the National Institute of Standards and Technology’s Manufacturing Extension Program (MEP), the Manufacturing USA institutes, and DOE battery manufacturing grants and hydrogen hubs authorized in IIJA. IIJA also authorized a new State Manufacturing Leadership program to provide competitive financial assistance to states that develop smart manufacturing programs.¹ This program is fundamentally different from SEP – it provides short-term competitive assistance rather than long-term block grants, and focuses on advanced manufacturing techniques regardless of sector rather than clean energy supply chains specifically. However, it could be merged with an expanded SEMP, or at least closely coordinated. Additional legislation, such as the COMPETES Act — which contains funding for regional innovation hubs, microelectronics research centers, and direct grants for solar and semiconductor manufacturing — could build upon these regional ecosystems.

SEMP can and should complement these efforts by providing consistent, long-term support directly to state governments, rather than specific projects or companies, to effectively plan and coordinate regional development strategies focused on clean energy technologies. This will enable states to develop and execute on regional manufacturing roadmaps over the course of decades. To do so effectively, SEMP should coordinate with related programs and agencies to identify strategic opportunities for clean energy manufacturing, particularly during the guidance development process.

Recommendation 5. Direct states to dedicate at least forty percent of funds to low-income, environmental justice, and energy communities. 

Under the Biden-Harris Administration’s Justice 40 commitment, forty percent of DOE funds are to be directed to underserved communities. Clean manufacturing can be a crucial tool for promoting economic revitalization and environmental justice in these communities, including those that have historically hosted emissions-intensive manufacturing facilities or fossil fuel production. DOE’s Office of Economic Impact and Diversity should help to connect states with tools, such as its energy justice dashboard and the funding clearinghouse from the Interagency Working Group on Coal & Power Plant Communities, and provide technical assistance to identify and prioritize these communities in SEMP-supported initiatives. 

On September 16th, 2021, the Day One Project convened a closed-door listening session for interagency government leaders to hear from co-founders and supply-chain leaders of 10 startups in critical industries — bioeconomy, cleantech, semiconductor — about challenges and opportunities to scale their operations and improve resilience in the United States. The panel was moderated by Elisabeth Reynolds, Special Assistant to the President for Manufacturing and Economic Development. The overarching theme is that for innovative companies in critical industries, the path of least resistance for scaling production is not in the United States — but it could be.

Unlike many startups that are purely software based and can scale quickly with little capital expenditure, these companies produce a product that requires manufacturing expertise and can take longer and more capital to grow to scale. Capital markets and government programs are often not well aligned with the needs of these companies, leaving the country at risk that many of the most cutting-edge technologies are invented here, but made elsewhere. As there is a tight relationship between the learning-by-building phase of scale up and innovation capacity, outsourcing production poses a threat to U.S. competitiveness. The country also risks losing the downstream quality manufacturing jobs that could stimulate economic growth in regions across the country.

Key Takeaways:

Challenges

• Overseas government incentives and manufacturing ecosystems, like intellectual property support, subsidies, and more available advanced manufacturing technology options, are more attractive than U.S. offerings.
• Shortcomings with existing federal programs and funding include a lack of government outreach to navigate the complexity of opportunities, regulations that delay access to funding on appropriate timelines, and misplaced emphasis away from commercialization.
• Supply chain gaps and opportunities for sustainable manufacturing in the United States were identified in quantum and bioindustry sectors.

Solutions

• Additional government financing mechanisms, like tax-credits for R&D and renewable tech and government co-investment opportunities through an expanded EXIM Bank, In-Q-Tel, J2 Ventures, and programs like the Development Finance Corporation (DFC) were highly encouraged.
• Improving government processes and regulations through reducing funding application timelines in the Department of Energy’s Loan Program Office or providing better guidance over The Committee on Foreign Investment in the United States (CFIUS) restrictions on quantum companies’ foreign acquisitions.
• Government demand-pull incentives were the most important solution recommended by startups in order to guide the development of technology from basic science to commercialization.

Challenges

There are significant challenges to taking advanced technology from earlier R&D phases to manufacturing products that demonstrate viability at scale. Available financing opportunities do not adequately support longer time horizons or larger capital requirements. A lack of manufacturing and engineering skills pose another barrier to scaling a product from prototype to pilot to commercial production. After many decades of disinvestment in the country’s manufacturing base, overcoming these challenges will be difficult but essential if we are to grow and benefit from our most innovative, emerging companies. As two of the bioeconomy startups stated:

“The USG knows how to fund research and purchase finished products. There is not enough money, and far more problematically, not nearly enough skilled Sherpas to fill the gap in between.”

“Manufacturing … has been considered as a “cost center,” … reducing cost of manufacturing (e.g., moving manufacturing sites offshore) is one of the major themes … Rarely there are investments or financing opportunities coming to the sector to develop new technologies that can drive innovation…the types of investment are usually very large (e.g., capex for building a manufacturing plant). As a result, it has been very hard for startups which dedicate themselves to novel, next generation manufacturing technologies to raise or secure sufficient funding.”

During the conversation, three specific challenges were identified that speak to key factors that contribute to this manufacturing gap in the United States:

1) Overseas Government Incentives and Manufacturing Ecosystems

The startups largely agreed that overseas governments provide more incentives to manufacture than the United States. Often, these countries have developed “manufacturing-led” ecosystems of private companies and other institutions that can reliably deliver critical inputs, whether as part of their value chain, or in terms of their broader development needs. Some examples from the companies include:

• “A Dutch-owned manufacturing plant in Brazil was designed to produce 30 million gallons of oil from algae; the favorable rates for such an endeavor were only made possible by the financing provided by the Brazilian Development Bank to bridge the gap of scale.” —Bioeconomy startup.
• “Currently, with a lack of biomanufacturing capacity in the US, there is a scramble for companies trying to secure capacity at contract manufacturing facilities, which are usually filled. Many are looking to other countries for scale up.” — Bioeconomy startup.
• “There are far more off-shore companies that support semiconductor packaging, manufacturing, and testing … given the volumes of these companies, it is much cheaper to do this off-shore…as foreign fabrication facilities have more technically advanced semiconductor manufacturing processes.” —Semiconductor startup.
• “The Taiwan Semiconductor Manufacturing Corporation (TSMC) also offers a much wider variety of IP support in their process libraries for semiconductors—much of this IP is production proven with a roadmap for support on future technology nodes.” —Semiconductor startup.

2) Shortcomings with Existing Federal Programs and Funding

The U.S. government has a wide range of programs that focus on supporting innovation and manufacturing. However, these programs are either targeted at the earlier stages of R&D and less on manufacturing scale up, are relatively small in scope, or involve time consuming and complicated processes to access them.

• “National Quantum Initiative allocates $1.4B towards the growth of the quantum industry and workforce, but most of this funding is going to National Labs. Larger contracts and grants to small businesses are needed.” —Semiconductor startup.

• “[Obtaining federal funding] is more complicated than going for venture backing or going to other countries.” —Semiconductor startup.
• “Regarding our knowledge of financing or other government support options currently available, I would say that any additional awareness, education or direction you can provide us with would be welcomed … even just making a single connection could prove beneficial and lower the burden [of figuring out how to access federal programs].” —Bioeconomy startup.
• “As we grew, we ran into early challenges convincing capital providers about the market drivers and perceptions about the waste industry and infrastructure …The time/timing of Department of Energy Loan Program Office funding has been a challenge taking over a year from review to award to project funding. Process doesn’t always match up with the speed of technology development and market need for commercialization.” —Cleantech startup.
• “Key U.S. federal agencies, most notably the National Security Agency (NSA), have publicly indicated a non-embrace of emerging quantum secure communication technology … The NSA position (which prefers new algorithm development) is greatly hampering VC investment in quantum component suppliers.” — Semiconductor startup.

3) Supply Chain Gaps and Opportunities for Sustainable Manufacturing in the U.S.

A few specific instances were described where the United States lacks access to critical inputs for bioeconomy and quantum development, as key suppliers are located abroad. However, as these emerging fields develop, critical inputs will change and present an opportunity to course correct. Therefore, improving our domestic manufacturing base now is vital for driving demand and establishing innovation ecosystems for industries of the future.

• “Quantum tech is going to be critical to the next century of product and tech development…The quantum supply chain currently has significant choke points for US suppliers. Many critical components (such as single frequency lasers, non-linear crystals, and InGaAs single photon detectors) are not available through US vendors.” —Semiconductor startup.
• “A lack of current capacity in the U.S. is also the opportunity for the industry as well to develop more sustainable processes, as new material inputs are developed and created, there will need to be new processes and new ways of manufacturing … With new bio inputs there is an opportunity to build up our biomanufacturing ability, produce on demand and rebuild that converter level, train a new workforce and create the building blocks for new materials that we need here to make products.“ —Bioeconomy startup.

Solutions

Startups commented on the importance of expanding funding opportunities, such as co- investment and tax credit solutions, as well as key process and regulatory changes. Most importantly, startups highlighted the importance of demand-pull mechanisms to help commercialize new technologies and create new markets.

1) Additional Government Financing Mechanisms

Several companies commented on the need to provide additional financing to support manufacturers, as equipment is often too expensive for venture avenues and other forms of capital are not readily available. These solutions include expanding government co- investment and leveraging tax credits.

• “Expanding the scope of the EXIM to support manufacturers looking to export materials and products abroad would be of interest. In the case of new, advanced biomaterials we have found that the EU is driving a great deal of demand interest as well as early adoption. Helping smaller companies with new materials developed in the US navigate this might benefit the speed of commercialization.” — Bioeconomy startup.
• “Two specific financing mechanisms to be expanded are 1) Increased funding for accelerator programs that support emerging US-based manufacturing companies and 2) government funding of venture capital companies like In-Q-Tel and J2 Ventures that can help support early-stage technology companies.” — Semiconductor startup.
• “Policymakers should support, maintain, and expand programs like the recent Development Finance Corporation’s investments [under Defense Production Act authority] to accelerate the domestic production of pharmaceuticals and active ingredients, particularly for essential medicines that are in short supply and often needed in response to public health emergencies.” —Bioeconomy startup.
• “The R&D Tax Credit is one of the most effective and efficient federal tax incentives for driving innovation across a variety of industries…an enhanced R&D tax credit for companies investing in research and development of technology to enable the domestic production of active pharmaceutical ingredients … would fully unlock the potential of synthetic biology and result in meaningful and immediate changes to the U.S. pharmaceutical supply chain.” —Bioeconomy startup.
• “Provided the incentives are set at adequate levels, incentives such as renewable energy and storage tax credits could be structured with bonuses to support domestic manufacturing in our selection of suppliers.” —Cleantech startup.

2) Improving Government Processes and Regulations

A few of the startups identified specific government processes or regulations that could be improved upon, such as application times for funding in energy sectors or restrictions in procurement or foreign acquisitions.

• “Department of Energy loan mechanisms appear to be developing positively, but for them to be effectively utilized, there needs to be a simple and swift process for application and decision making. We hear horror stories of 9 months to 3 years for this process currently.” —Bioeconomy startup.
• “In-Q-Tel is an excellent funding vehicle … However, they require a Department of Defense (DoD) sponsor. Given the stance of NSA, DoD sponsors are unwilling to support an investment in a non-NSA desired technology. This eliminates a critical government financing mechanism.” —Semiconductor startup.
• “Securing the US supply chain in quantum is going to require the acquisition of key foreign owned companies and processes. For small companies, these acquisitions are only possible when equity sharing is included in the negotiations. The Committee on Foreign Investment in the United States (CFIUS) restrictions greatly complicate these negotiations since foreign ownership in a US company that is producing products with national security implications is restricted. Although these restrictions are still needed, it would be helpful if CFIUS could provide more direct guidance to US companies negotiating the acquisition and transfer of foreign manufacturing capabilities.” —Semiconductor startup.

3) Government Demand-pull Incentives:

Most, if not all, startups felt that the best role for the government is in creating demand- pull incentives to support the development of technology from basic science to commercialization and help create new markets for leading-edge products. This can range from procurement contracts to new regulatory standards and requirements that can incent higher quality, domestic production.

• “The best role that the Department of Defense or other agencies can play is that they can help drive the demand for these technologies.” —Cleantech startup.
• “The most important thing that the Government can do to help speed the financing and adoption of new advanced materials is to help to build the pull through from research and new materials development to the final product … We believe that we have a once in a generation opportunity to re-imagine how we manufacture goods and products here in the US. We need to look at the whole of the supply chain from molecule and material inputs to final products. There has been a hollowing out of the middle of the supply chain for manufacturing here in the United States.” — Bioeconomy startup.
• “Policymakers should continue to invest in public-private partnerships like the Manufacturing USA Institutes, which brings together experts from government, academia, and industry to support projects from the research phase through the commercialization of innovative technologies.” —Bioeconomy startup.
• Examples:
  • “If there were a mechanism to incent companies and early adopters to reducetheir petroleum inputs and bridge the gap all the way to the domestically sourced chemical inputs to their domestic manufacturing it could help to create more secure supply chains.” —Bioeconomy startup.
  • “Domestic procurement requirements … could stimulate investment in domestic pharmaceutical supply chain[s] … Policymakers should consider maintaining a list of essential medicines and give preference to domestically sourced pharmaceuticals (and active ingredients) in any federal procurement programs” —Bioeconomy startup.
  • “Policymakers should consider directing the Food and Drug Administration to create a priority review designation for domestically sourced pharmaceutical products and active ingredients. By moving these products to the top of the priority list, manufacturers would have another incentive to change supply chain practices and shift production back to the United States.” —Bioeconomy startup.

Conclusion

These anecdotes provide a small window into some of the challenges startups face scaling their innovative technologies in the United States. Fixing our scale up ecosystem to support more investment in the later-stage manufacturing and growth of these companies is essential for U.S. leadership in emerging technologies and industries. The fixes are many — large and small, financial and regulatory, product and process-oriented — but now is a moment of opportunity to change pace from the past several decades. By addressing these challenges, the United States can build the next generation of U.S.-based advanced manufacturing companies that create good quality, middle-skill jobs in regions across the country. The Biden-Harris Administration has outlined a new industrial strategy that seeks to realize this vision and ensure U.S. global technological and economic leadership, but it’s success will require informing policy efforts with on-the-ground perspectives from small- and medium-sized private enterprises.

S. 1605 — National Defense Authorization Act for Fiscal Year 2022

​SEC. 1004. Commission on Planning, Programming, Budgeting, and Execution Reform.

            (a) Establishment.–

                         (1) In general.–There is hereby established an independent commission in the legislative branch to be known as the “Commission on Planning, Programming, Budgeting, and Execution Reform” (in this section referred to as the “Commission”).

                        (2) Date of establishment.–The Commission shall be established not later 30 days after the date of the enactment of this Act.

            (b) Membership.–

                        (1) Number and appointment.–The Commission shall be composed of 14 civilian individuals not employed by the Federal Government who are recognized experts and have relevant professional experience one or more of the following:

                                    (A) Matters relating to the planning, programming, budgeting, and execution process of the Department of Defense.

                                    (B) Innovative budgeting and resource allocation methods of the private sector.

                                    (C) Iterative design and acquisition process.

                                    (D) Budget or program execution data analysis.

                        (2) Members.–The members shall be appointed as follows:

                                    (A) The Secretary of Defense shall appoint two members.

                                    (B) The Majority Leader and the Minority Leader of the Senate shall each appoint one member.

                                    (C) The Speaker of the House of Representatives and the Minority Leader shall each appoint one member.

                                    (D) The Chair and the Ranking Member of the Committee on Armed Services of the Senate shall each appoint one member.

                                    (E) The Chair and the Ranking Member of the Committee on Armed Services of the House of Representatives shall each appoint one member.

                                    (F) The Chair and the Ranking Member of the Committee on Appropriations of the Senate shall each appoint one member.

                                    (G) The Chair and the Ranking Member of the Committee on Appropriations of the House of Representatives shall each appoint one member.

                        (3) Deadline for appointment.–Not later than 30 days after the date described in subsection (a)(2), members shall be appointed to the Commission.

                        (4) Expiration of appointment authority.–The authority to make appointments under this subsection shall expire on the date described in subsection (a)(2), and the number of members of the Commission shall be reduced by the number equal to the number of appointments so not made.

            (c) Chair and Vice Chair.–The Commission shall elect a Chair and Vice Chair from among its members.

            (d) Period of Appointment and Vacancies.–Members shall be appointed for the term of the Commission. A vacancy in the Commission shall not affect its powers and shall be filled in the same manner as the original appointment was made.

            (e) Purpose.–The purpose of the Commission is to–

                        (1) examine the effectiveness of the planning, programming, budgeting, and execution process and adjacent practices of the Department of Defense, particularly with respect to facilitating defense modernization;

                        (2) consider potential alternatives to such process and practices to maximize the ability of the Department of Defense to respond in a timely manner to current and future threats; and

                        (3) make legislative and policy recommendations to improve such process and practices in order to field the operational capabilities necessary to outpace near-peer competitors, provide data and analytical insight, and support an integrated budget that is aligned with strategic defense objectives.

            (f) Scope and Duties.–The Commission shall perform the following duties:

                        (1) Compare the planning, programming, budgeting, and execution process of the Department of Defense, including the development and production of documents including the Defense Planning Guidance (described in section 113(g) of title 10, United States Code), the Program Objective Memorandum, and the Budget Estimate Submission, with similar processes of private industry, other Federal agencies, and other countries.

                        (2) Conduct a comprehensive assessment of the efficacy and efficiency of all phases and aspects of the planning, programming, budgeting, and execution process, which shall include an assessment of–

                                    (A) the roles of Department officials and the timelines to complete each such phase or aspect;

                                    (B) the structure of the budget of Department of Defense, including the effectiveness of categorizing the budget by program, appropriations account, major force program, budget activity, and line item, and whether this structure supports modern warfighting requirements for speed, agility, iterative development, testing, and fielding;

                                    (C) a review of how the process supports joint efforts, capability and platform lifecycles, and transitioning technologies to production;

                                    (D) the timelines, mechanisms, and systems for presenting and justifying the budget of Department of Defense, monitoring program execution and Department of Defense budget execution, and developing requirements and performance metrics;

                                    (E) a review of the financial management systems of the Department of Defense, including policies, procedures, past and planned investments, and recommendations related to replacing, modifying, and improving such systems to ensure that such systems and related processes of the Department result in–

                                                (i) effective internal controls;

                                                (ii) the ability to achieve auditable financial statements; and

                                                (iii) the ability to meet other financial management and operational needs; and

                                    (F) a review of budgeting methodologies and strategies of near-peer competitors to understand if and how such competitors can address current and future threats more or less successfully than the United States.

                        (3) Develop and propose recommendations to improve the effectiveness of the planning, programming, budgeting, and execution process.

            (g) Commission Report and Recommendations.–

                        (1) Interim report.–Not later than February 6, 2023, the Commission shall submit to the Secretary of Defense and the congressional defense committees an interim report including the following:

                                    (A) An examination of the development of the documents described in subsection (f)(1).

                                    (B) An analysis of the timelines involved in developing an annual budget request and the future-years defense program (as described in section 221 of title 10, United States Code), including the ability to make changes to such request or such program within those timelines.

                                    (C) A review of the sufficiency of the civilian personnel workforce in the Office of the Secretary of Defense and the Office of Cost Assessment and Program Evaluation to conduct budgetary and program evaluation analysis.

                                    (D) An examination of efforts by the Department of Defense to develop new and agile programming and budgeting to enable the United States to more effectively counter near-peer competitors.

                                    (E) A review of the frequency and sufficiency of budget and program execution analysis, to include any existing data analytics tools and any suggested improvements.

                                    (F) Recommendations for internal reform to the Department relating to the planning, programming, budgeting, and execution process for the Department of Defense to make internally.

                                    (G) Recommendations for reform to the planning, programming, budgeting, and execution process that require statutory changes.

                                    (H) Any other matters the Commission considers appropriate.

                        (2) Final report.–Not later than September 1, 2023, the Commission shall submit to the Secretary of Defense and the congressional defense committees a final report that includes the elements required under paragraph (1).

                        (3) Briefings.–Not later than 180 days after the date specified in subsection (a)(2), and not later than 30 days after each of the interim and final reports are submitted, the Commission shall provide to the congressional defense committees a briefing on the status of the review and assessment conducted under subsection (f) and include a discussion of any interim or final recommendations.

                        (4) Form.–The reports submitted to Congress under paragraphs (1) and (2) shall be submitted in unclassified form but may include a classified annex.

            (h) Government Cooperation.–

                        (1) Cooperation.–In carrying out its duties, the Commission shall receive the full and timely cooperation of the Secretary of Defense in providing the Commission with analysis, briefings, and other information necessary for the fulfillment of its responsibilities.

                        (2) Liaison.–The Secretary shall designate at least one officer or employee of the Department of Defense to serve as a liaison between the Department and the Commission.

                        (3) Detailees authorized.–The Secretary may provide, and the Commission may accept and employ, personnel detailed from the Department of Defense, without reimbursement.

                        (4) Facilitation.–

                                    (A) Independent, non-government institute.–Not later than 45 days after the date specified in subsection (a)(2), the Secretary of Defense shall make available to the Commission the services of an independent, nongovernmental organization, described under section 501(c)(3) of the Internal Revenue Code of 1986 and which is exempt from taxation under section 501(a) of such Code, which has recognized credentials and expertise in national security and military affairs, in order to facilitate the discharge of the duties of the Commission under this section.

                                    (B) Federally funded research and development center.–On request of the Commission, the Secretary of Defense shall make available the services of a federally funded research and development center in order to enhance the discharge of the duties of the Commission under this section.

            (i) Staff.–

                        (1) Status as federal employees.–Notwithstanding the requirements of section 2105 of title 5, United States Code, including the required supervision under subsection (a)(3) of such section, the members of the commission shall be deemed to be Federal employees.

                        (2) Executive director.–The Commission shall appoint and fix the rate of basic pay for an Executive Director in accordance with section 3161(d) of title 5, United States Code.

                        (3) Pay.–The Executive Director, with the approval of the Commission, may appoint and fix the rate of basic pay for additional personnel as staff of the Commission in accordance with section 3161(d) of title 5, United States Code.

            (j) Personal Services.–

                        (1) Authority to procure.–The Commission may–

                                    (A) procure the services of experts or consultants (or of organizations of experts or consultants) in accordance with the provisions of section 3109 of title 5, United States Code; and

                                    (B) pay in connection with such services the travel expenses of experts or consultants, including transportation and per diem in lieu of subsistence, while such experts or consultants are traveling from their homes or places of business to duty stations.

                        (2) Maximum daily pay rates.–The daily rate paid an expert or consultant procured pursuant to paragraph (1) may not exceed the daily rate paid a person occupying a position at level IV of the Executive Schedule under section 5315 of title 5, United States Code.

            (k) Authority to Accept Gifts.–The Commission may accept, use, and dispose of gifts or donations of services, goods, and property from non-Federal entities for the purposes of aiding and facilitating the work of the Commission. The authority in this subsection does not extend to gifts of money. Gifts accepted under this authority shall be documented, and conflicts of interest or the appearance of conflicts of interest shall be avoided. Subject to the authority in this section, commissioners shall otherwise comply with rules set forth by the Select Committee on Ethics of the Senate and the Committee on Ethics of the House of Representatives governing Senate and House employees.

            (l) Legislative Advisory Committee.–The Commission shall operate as a legislative advisory committee and shall not be subject to the provisions of the Federal Advisory Committee Act (Public Law 92-463; 5 U.S.C. App) or section 552b, United States Code (commonly known as the Government in the Sunshine Act).

            (m) Contracting Authority.–The Commission may acquire administrative supplies and equipment for Commission use to the extent funds are available.

            (n) Use of Government Information.–The Commission may secure directly from any department or agency of the Federal Government such information as the Commission considers necessary to carry out its duties. Upon such request of the chair of the Commission, the head of such department or agency shall furnish such information to the Commission.

            (o) Postal Services.–The Commission may use the United States mail in the same manner and under the same conditions as departments and agencies of the United States.

            (p) Space for Use of Commission.–Not later than 30 days after the establishment date of the Commission, the Administrator of General Services, in consultation with the Commission, shall identify and make available suitable excess space within the Federal space inventory to house the operations of the Commission. If the Administrator is not able to make such suitable excess space available within such 30-day period, the Commission may lease space to the extent the funds are available.

            (q) Removal of Members.–A member may be removed from the Commission for cause by the individual serving in the position responsible for the original appointment of such member under subsection (b)(1), provided that notice has first been provided to such member of the cause for removal and voted and agreed upon by three quarters of the members serving. A vacancy created by the removal of a member under this subsection shall not affect the powers of the Commission, and shall be filled in the same manner as the original appointment was made.

            (r) Termination.–The Commission shall terminate 180 days after the date on which it submits the final report required by subsection (g)(2).

Summary

The Biden Administration should enhance the efforts of the U.S. Patent and Trademark Office (PTO) to defend against fraudulent trademark registrations. Since 2015, the PTO has struggled to cope with a rising flood of fraudulent trademark applications originating mainly from China. One study indicates that as many as two-thirds of Chinese trademark applications for certain classes of goods include falsified evidence that the applicant is using the mark in commerce in the United States — a requirement for trademark registration under U.S. law. High proportions (up to 40%) of these fraudulent applications survive the PTO’s application-review process and result in fraudulent trademark registrations.

Urgent action is necessary. The PTO reports that the trademark application rate has recently surged to extreme levels, which has doubled the number of applications awaiting examination. Many of these applications likely contain fraudulent claims of use. Identifying and denying fraudulent claims will help ensure that only those businesses that are actually using their trademarks in U.S. commerce benefit from the U.S. trademark system. In addition to creating a fair playing field for companies (both American and foreign) that abide by the rules, countering fraudulent trademark registrations will support American economic recovery from the COVID-19 pandemic by providing small businesses with robust protection for brand names of new products.

Summary

President Biden made advanced manufacturing a major policy priority during his campaign, including calling for a significant expansion of manufacturing programs to reach 50 communities through new manufacturing-technology hubs. Expanded manufacturing programs will invest in our nation’s long-term competitive innovation capacity. However, building these programs successfully requires a thoughtful and practical implementation plan. This memo presents two categories of recommendations to improve the U.S. advanced-manufacturing ecosystem:

1. Improve the existing Manufacturing USA institutes. Some new institutes are needed, but the Administration should concentrate first on strengthening support for the 16 existing Manufacturing USA Institutes, renewing the terms of institutes that are performing well, and expanding the reach of those institutes by launching more workforce-development programs, regional technology demonstration centers, initiatives to engage small- and mid-sized manufacturers and build regional manufacturing ecosystems.

2. Implement a multi-part strategy for collaboration among the Institutes: First, the Administration should create a “network function” across the Manufacturing USA Institutes because firms will need to adopt packages of manufacturing technologies not just one at a time. This could be supported by the National Institute of Standards and Technology (NIST) and would combine the advances of different Institutes and package them to be integrated and interoperable for easy adoption by firms. Second, a NIST-led traded-sector-analysis unit should be created to evaluate the manufacturing progress of other nations and inform Institute priorities. Third, the Administration should provide research and development (R&D) agencies with resources to build manufacturing-related R&D feeder systems (e.g., an expanded pipeline of manufacturing technologies) that aligns with Institute needs. Fourth, the administration should establish an Advanced Manufacturing Office within the White House National Economic Council to coordinate and champion all of the above, as well as numerous other manufacturing programs.

Summary

Improving university/corporate research partnerships is key to advancing US competitiveness. Reform of the IRS rules surrounding corporate sponsored research taking place in university facilities funded by tax-exempt bonds has long been sought by the higher education community and will stimulate more public-private partnerships. With Congress considering new ways to fund research through a new NSF Technology Directorate and the possibility of a large infrastructure package, an opportunity is now open for Congress to address these long-standing reforms in IRS rules.

Summary

The federal lab system is an enormous, $50 billion-plus enterprise of internal research and development (R&D) across the United States. As governments around the world, including China, pour billions of dollars into advanced technologies, it is imperative that we use our nation’s federal lab ecosystem as effectively as possible.

However, because federal labs have varying legal authorities, missions, and cultures, their records of local economic engagement and technology commercialization vary considerably. Universities, by contrast, have demonstrated a strong record of supporting regional innovation ecosystems through use of place (creating incubators, research parks, and adjacent innovation districts), talent (allowing university researchers to be involved with private-sector technology under approved and managed relationships), and innovation (using intermediary university foundations to take on business aspects of technology commercialization).

The Federal Authority for Science, Technology, Entrepreneurship, and Research (FASTER) Federal Labs Act will make it possible for all federal labs to use the tried-and-true tools that universities use for economic engagement and technology commercialization. The FASTER Federal Labs Act will do this by: (i) allowing surplus federal land to be used for public-private partnership facilities, (ii) creating clearer pathways for federal researchers to work with startup companies, and (iii) authorizing a federally charted tech-transfer organization based on models established at leading research universities. The FASTER Federal Labs Act will not require significant outlay of federal appropriations as many of its provisions simply give federal labs greater discretion over deployment of existing resources. The Act can be implemented relatively easily as an add-on to legislation expected to be considered by this Congress.

Innovative manufacturing techniques can expand the production of drugs and medical supplies in the U.S.

The COVID-19 pandemic caused significant disruptions in global supply chains, and policymakers are now strategizing around how to ramp up U.S. supply chain resiliency. Everything from beef to toilet paper became more difficult to find in U.S. stores, and the pandemic also caused dire shortages of medical supplies and lifesaving treatments. The shortages were caused by the closure of many manufacturing plants in countries like China, and our domestic supply chain was not sufficient to meet the demand gap. In fact, it is estimated that China exports more respirators, surgical masks, and other personal protective equipment than the rest of the world combined. The limited capacity of domestic supply chains – particularly for pharmaceuticals and medical supplies – was a focus for Chair Tammy Baldwin (D, WI) during last week’s Senate Appropriations Subcommittee hearing featuring testimony from Dr. Janet Woodcock, acting commissioner of the Food and Drug Administration (FDA).

The distributed nature of modern manufacturing

The production of goods such as smartphones, medical therapeutics, or kitchen appliances is complex. Manufacturers rely on highly-trained specialists to make different components that are eventually combined into a single product. For example, the manufacture of LCD displays requires obtaining the raw materials, like glass sheets, films, semiconductor chips, and circuit connectors, from other manufacturers around the world, and assembling components inside multi-billion-dollar factories. Specialization in manufacturing allows businesses to develop new, lower-cost technologies, and more easily scale production and design processes. Unfortunately, specialization also results in a layered network of manufacturers relying on yet other manufacturers, and so on, and it becomes very difficult to determine where each component is coming from in the supply chain. The lack of visibility into this process then exacerbates disruptions in manufacturing during crises, such as the COVID-19 pandemic.

Federal partnerships to strengthen the domestic manufacturing base

To protect against future disruptions, implementing advanced manufacturing practices in domestic facilities, and encouraging businesses, particularly those that make critical drugs and medical supplies, to set up new advanced manufacturing plants in the U.S., can make a substantial impact. During last week’s hearing, Senate Appropriations Subcommittee on Agriculture, Rural Development, FDA, and Related Agencies Chair Baldwin began by asking (33:05 mark in video) FDA Acting Commissioner Woodcock about how the agency is helping to strengthen domestic pharmaceutical supply chains with advanced manufacturing.

The implementation of advanced manufacturing is a top priority for the Biden Administration, and earlier this year, the FDA partnered with the National Institute of Standards and Technology (NIST) to develop an advanced manufacturing regulatory framework. The partnership aims to “increase U.S. medical supply chain resilience and advanced domestic manufacturing of drugs, biological products, and medical devices through adoption of 21st century manufacturing technologies.” One emerging technology that will be explored by the partnership is the modularization of manufacturing processes. Modularization refers to structuring discrete parts of the manufacturing process in a way that they can be plugged into each other in different combinations and still function properly. With modular processes, reconfiguring the manufacturing floor to produce a different medicine or device could take just hours or days, instead of months. Another example is using artificial intelligence to track production, tweak settings to increase efficiency, and schedule maintenance to reduce the amount of downtime necessary.

In addition to FDA and NIST efforts to implement advanced manufacturing for medical supplies, two Manufacturing USA Institutes – the National Institute for Innovation in Manufacturing Biopharmaceuticals (NIIMBL) and the Bioindustrial Manufacturing and Design Ecosystem (BioMADE) – are pursuing new advanced biomanufacturing solutions. NIIMBL is a public-private partnership supported by industry and NIST to “accelerate biopharmaceutical innovation,” develop standards, and educate the biomanufacturing workforce. Advances in manufacturing processes developed by NIIMBL aid in the production of treatments for debilitating diseases like cancer, autoimmune disorders, microbial infections, and diabetes. BioMADE is one of the newest Manufacturing USA institutes, supported by the Department of Defense and industry partners. It will promote the commercialization of new biomanufacturing technologies by (i) developing predictive models to move products from the lab to production, (ii) de-risking new technologies, and (iii) manufacturing products at pilot and intermediate scales before they are produced at full scale. BioMADE would also help establish best practices for the biofabrication of novel chemicals, enzymes, and other useful biological products.

Advanced manufacturing for on-demand pharmaceuticals

There are already numerous advanced manufacturing technologies that could be leveraged to boost domestic capacity and improve U.S. self-sufficiency in the production of high-priority medicines, such as anesthetics. Building on work that is underway at the federal level, there are additional opportunities for the Executive Branch to form cross-cutting, productive partnerships. A proposal from Dr. Geoffrey Ling – former founding director of the Biological Technologies Office at the Defense Advanced Research Projects Agency, CEO of On Demand Pharmaceuticals, and Day One Project contributor – suggests that the U.S. Government could launch a national adaptive pharmaceutical manufacturing initiative. This initiative would aim to achieve self-sufficiency for the production of medicines in the U.S. by implementing new technologies to establish high-quality and automated systems readily deployed across the country. Action steps would include fostering:

• “Targeted synthetic biology research and development to enable faster manufacturing of low-cost, on-demand vaccines and precision immunotherapies;”
• “Advanced development of green, modular, on-demand small-molecule manufacturing technologies;” and
• “New business models to support the economically sustainable domestic adoption and deployment of new manufacturing technology.”

By convening experts from the public and private sectors, as well as academia, to craft a national strategy for advanced manufacturing, and then supporting its execution, the federal government could help reduce U.S. dependence on foreign pharmaceutical and medical supply manufacturing.

Fundamental research setting the stage for advanced manufacturing

While much of the focus to implement advanced manufacturing technologies is on later-stage experimental development and commercialization, fundamental research is critical to launching these cutting-edge systems. For instance, the National Science Foundation (NSF) spent an estimated $318 million on basic manufacturing research in fiscal year 2021, and is requesting an additional $100 million in funding for its work in fiscal year 2022. In the coming fiscal year, NSF plans to sponsor research in scientific disciplines vital to advanced manufacturing, such as:

• “Highly-connected, adaptable, resilient, safe, and secure cyber-physical systems;”
• “New methods, processes, analyses, tools, or equipment for new or existing manufacturing products, supply-chain components, or chemicals and materials, including replacements for mainstay materials such as plastics that cause environmental harm;”and
• “Next-generation manufacturing infrastructure as part of a broader effort to design and renew national infrastructure.”

Today’s investments in fundamental research into manufacturing are expected to catalyze tomorrow’s breakthrough advanced manufacturing technologies.

Looking ahead

The full implementation of new developments in advanced manufacturing has the potential to ensure the resilience of U.S. medical supply chains in future crises. It can also provide other significant benefits, such as improvements in the quality of critical treatments and therapies, the creation of new jobs, and strengthening the economy. As the FDA, NIST, and other federal agencies work together, and Congress explores ways to continue supporting advanced manufacturing, we encourage the CSPI community to continue to serve as a resource to federal officials.

Summary

Technical standards underpin the functioning of digital devices central to everyday life. What might, at first glance, seem to be a wonky, technical process for figuring out things like how to ensure mobile devices can all connect to the same network, has emerged as an arena of geopolitical competition. Standards confers first-mover advantages on the companies that propose them and economic benefits on countries, and they implicate values like privacy. China has aggressively sought to promote its technical standards by encouraging Chinese representatives to assume leadership roles in standards bodies, financially rewarding companies that propose technical standards, coercing Chinese firms to vote as a bloc within standards bodies, and working to shape the standards landscape to its advantage.

In light of the growing recognition of the strategic importance of technical standards, the March 2020 report from the U.S. Cyberspace Solarium Commission (CSC) recommended that the United States “engage actively and effectively in forums setting international information and communications technology standards.” In a similar vein, the FY2021 National Defense Authorization Act (NDAA) included a provision tasking the Departments of State and Commerce and the Federal Communications Commission (FCC) with considering how to advance U.S. representation in international standards bodies. This paper expands on the CSC’s recommendation and proposes concrete actions to be taken in support of the aims outlined in the FY2021 NDAA. In brief, the U.S. federal government should:

1. Direct and organize departments and agencies to better coordinate input to (and participation in) international standards bodies;
2. Work with like-minded countries to advance technically sound standards proposals that preserve the free, open, and interoperable nature of the ICT ecosystem;
3. Facilitate a public-private partnership to encourage and support greater participation of U.S. companies in international standards bodies; and
4. Seek transparency reforms within international standards bodies and advocate for “cooling-off periods” that prevent former government officials (from any country) from taking on leadership roles in standards bodies for a specified period of time following government service.

Summary

America faces a host of daunting problems that demand forward-looking solutions. Addressing these challenges will require us to unleash the full potential of our research and development community, leveraging new approaches to innovation that break through both technical and institutional barriers and initiate wholly new capabilities. The Advanced Research Projects Agency (ARPA) model has resulted in exactly this kind of high-impact innovation in defense, intelligence, and energy. This model can be applied to other critical societal challenges such as climate, labor, or health. But an ARPA must have the right core elements if it is to create the fresh solutions the country needs.

The ARPA model is distinctly different from other federal agencies in mission, operations, and culture. ARPA organizations are part of a much broader ecosystem that spans from research to implementation. Their role is to create breakthrough, paradigm-shifting solutions and capabilities. In order to position a new ARPA for success, Congress, the Administration, and the agency’s founding leaders must understand the unique properties of an ARPA and the process by which ARPAs approach and manage risk to develop game-changing advances.

To establish a strong foundation for a new ARPA to do this work, Congress and the Administration will need to address four factors:

• Purpose: Clearly and succinctly define the vital national purpose for the new ARPA.
• Operations: Set the agency up to function autonomously, with its own budget, staff, and operating practices.
• Authorities: Give the new ARPA flexible hiring and contracting authorities to draw new and extraordinary talent to the nation’s challenges.
• Leadership: Appoint an exceptional leadership team, hold them to a high standard for impact, and create room for them to deliver on the full potential of the ARPA model.

Over the course of a few years, a new ARPA can grow into a powerfully effective organization with people, practices, and culture honed to create breakthroughs. If well implemented, new ARPAs can be extraordinary additions to our R&D ecosystem, providing unimagined new capabilities to help us meet our most essential societal challenges.

Challenge and Opportunity

America faces some daunting problems today. Many millions of Americans are unable to access our nation’s rich opportunities, leaving all of us poorer without their contributions. Dozens of other countries have longer life spans and lower infant mortality rates, although we spend more per capita on healthcare than any other country. We are not yet on track to contain the damages of a changing climate or to manage its impacts. Global competition has resulted in more and more U.S. research advances being used to create jobs elsewhere. R&D alone won’t solve any of these problems. But every one of these challenges demands creative new solutions.

However, America’s phenomenally productive R&D ecosystem—with its half a trillion dollars spent annually by the public and private sectors—is not aimed at these large, society-wide challenges. How do we create a generational shift in our innovation ecosystem so that it contributes as much to meeting this century’s challenges as it did for those of the last century? What can we learn from our successful R&D history, and what approaches can we adapt to address the problems that we now face?

One part of the answer lies in the Advanced Research Projects Agency (ARPA) model for innovation. This kind of innovation knocks down both technical and institutional barriers to create transformational new capabilities. ARPA organizations are part of a much broader ecosystem, spanning from research to implementation, in which their role is to create breakthrough solutions and capabilities that fundamentally change what we define as possible. In pursuit of revolutionary advances, they accept and manage a level of risk for which companies and other government agencies have no incentive.

The first ARPA, the Defense Advanced Research Projects Agency (DARPA), was launched in 1958 at the height of the Cold War. DARPA shifted military capabilities from mass bombing to precision strike with GPS, stealth technologies, and integrated combat systems. These innovations recast defense systems, changed military outcomes, and shaped geopolitics over decades. Meanwhile, DARPA’s programs in enabling technologies also seeded artificial intelligence, developed advanced microelectronics, and started the internet. In recent years, DARPA programs have built the first ship able to navigate from the pier and cross oceans without a single sailor on board,¹ created a radical new approach to reconfigurable military capabilities to outpace global adversaries,² developed the first systems—now in operation by the Port Authority of New York and New Jersey—for cities to continuously monitor for dangerous nuclear and radiological materials,³ and created a rapid-response mRNA vaccine platform⁴ that enabled the astonishingly fast development⁵ of today’s mRNA vaccines for COVID-19.

We are also starting to show that the ARPA model can be successfully adapted to other national purposes. In 2006, the Intelligence Advanced Research Projects Activity (IARPA) was formed to serve the intelligence community. One of IARPA’s programs has developed methods to overcome individual cognitive biases by weighting and synthesizing the judgments of many analysts. This approach provides important gains in prediction and is a new paradigm for forecasting events in a complex world. In 2009, the Advanced Research Projects Agency–Energy (ARPA-E) launched in the Department of Energy. Its programs have created new power semiconductors, new battery technologies, and new methods to improve appliance efficiency, making vital contributions to our clean energy future. Both ARPAs have invigorated R&D communities by connecting them to hard, important problems and giving them a pathway to drive impact.

Implementing the ARPA model to meet other critical challenges could have enormous impact. Indeed, President Biden has already proposed ARPAs for health and climate,⁶ and others have advanced visions for ARPAs for agriculture,⁷ labor⁸ and education. In addition, the Endless Frontier Act⁹ takes inspiration from the ARPA model in its vision for an expanded technology function at NSF to address economic competitiveness.

Behind each call for an “ARPA for X” is a yearning for R&D that throws open new doors to radically better solutions. But the ARPA model is very different from other federal agencies and unlocking its potential will require much more than affixing the name. The starting point is an understanding of how ARPAs generate their outsized advances.

Though specifics vary according to the mission of a new ARPA, the essential operating model is based on these elements:

• An ARPA designs and conducts programs that run for limited periods, typically 3-5 years. Each ARPA program sets out to achieve a specific, bold goal that may seem impossible but that, if demonstrated, can initiate a major advance. Each ARPA program contracts with companies, universities, and other organizations to execute R&D efforts. It also engages the parties who can implement and scale successful program results.
• An ARPA requires exceptionally talented program managers with a rare combination of expertise, vision, and the ability to execute and deliver results.
• ARPA leadership approves a series of individual programs, constructing and overseeing a full and diversified portfolio.

ARPA Programs

An ARPA generates major advances through intelligently managed risk-taking. The fundamental unit of work for an ARPA is a solutions-oriented R&D program that aims at achieving a previously unimaginable goal. Each program has a fixed term, typically 3-5 years, and each is designed, executed, and transitioned by an ARPA program manager.

Design

The program manager designs the program to achieve a bold goal—one that may seem impossible but that, if demonstrated, could catalyze a major advance. They build a rigorous plan to achieve the goal. A set of questions known as the Heilmeier Catechism¹⁰ (from an iconic DARPA director in the 1970s) guides program development:

• What are you trying to do? Articulate your objectives using absolutely no jargon.
• How is it done today, and what are the limits of current practice?
• What is new in your approach and why do you think it will be successful?
• Who cares? If you are successful, what difference will it make?
• What are the risks?
• How much will it cost?
• How long will it take?
• What are the mid-term and final “exams” to check for success?

These questions are easy—even obvious—to ask, but surprisingly difficult to answer well. Program managers typically grapple with them over 6-12 months to design a strong program, and agency leaders use them to guide their judgement about the potential of a new program for approval. The questions also guide program execution.

Execution

Once a program is launched, the program manager contracts with whichever organizations are needed to achieve the program’s goal. That typically means companies, universities, nonprofits, other parts of government, and other organizations with the talent and capacity to conduct the necessary R&D. Contracting this work has the obvious benefit that the ARPA doesn’t have to hire staff and provide facilities for this R&D. But even more important is the fact that this approach mobilizes individuals and organizations. Over the course of the program, these participants become a community that not only delivers the program vision but can help drive it forward beyond the term of the ARPA program.

The work of the program is to weave the threads of research from multiple domains together with lessons from the reality of use and practice in order to develop and demonstrate prototype systems or capabilities. The program rigorously evaluates how well its innovation works, how it works in specific environments, and how it can be scaled. 

An ARPA program often draws on basic research and often generates fresh research, but research is an input rather than the objective. Unlike the management of basic research, these programs drive to a specific goal. They may sometimes resemble product development, but for a prototype product that serves a public purpose rather than a visible market opportunity. Often, they require a much higher degree of risk than product development because they reach for a barely feasible goal. 

An ARPA program aims to demonstrate that a powerful new approach can work despite the risk inherent in trying something radically different. This requires actively managing the multiple efforts within the ARPA program. An ARPA program manager accelerates lines of work that show great promise and redirects or stops work that is not yielding results. They nimbly reallocate resources to keep wringing out risk and driving to the program’s objective.  

Transition

In parallel, the program manager engages the decision makers who can advance, adopt, implement, and fully scale the results of the program. If the breakthrough will require commercialization, that could include additional companies, investors, and entrepreneurs. If full-scale implementation requires changes in policies and practices, that means engaging regulators, policy makers, and community organizations. Understanding the needs and realities of implementers is important from the early stages of program design. It is sometimes the case that these implementers are skeptical about the program’s bold goal at the start. As the program unfolds, they are invited to program reviews and demonstrations. The program strives to address their concerns and may even provide support for their internal analyses, evaluations, and trials. When these engagements work well, the ARPA program manager is able to bring implementers along on the journey from wild dream to demonstrated reality. Successful transition starts when they change their minds about what’s possible. And the ultimate societal impact of the ARPA program comes when these implementers have fully scaled the ARPA breakthrough. 

A fully successful program ends with a convincing demonstration of a new capability; a community that can carry it forward; and decision makers who are ready to support and fund implementation in products, services, policies, and practices.

ARPA program managers

None of this can happen without exceptionally capable program managers. An ARPA organization hires program managers on fixed terms to design, manage, and transition these high-impact programs. ARPA leadership coaches program managers, helps build partnerships and remove obstacles, and approves and oversees all programs. But it puts enormous responsibility and authority on the shoulders of program managers. 

ARPA program managers come from backgrounds in companies, universities, nonprofits, and other parts of government, and they serve at different times in their careers. They bring a “head in the stars, feet on the ground” blend of these key characteristics: 

• The program manager is an expert in a relevant area. 
• They see the big picture and navigate easily from details to strategic outcomes. 
• They are driven to achieve a major impact. Sometimes this is manifested as a constructive impatience with the limitations of conventional organizations and approaches. 
• They are able to project a vision. 
• They are able to build and lead a community to accomplish goals. 
• They have a sound ethical core. 

ARPA portfolios

ARPA leadership approves a series of individual programs, constructing and managing a full portfolio that is diversified to maximize total impact despite the risk inherent in each program. Every program learns, not all succeed, and failure is accepted as integral to the mission.

Plan of Action 

Based on these core elements of a successful ARPA model, we offer four recommendations for policy makers as they establish new ARPA organizations. 

Purpose

Clearly and succinctly define the vital national purpose for the new ARPA. An ARPA exists to create breakthroughs for an important public need. For DARPA, this is national security. For ARPA-E, it is economic and energy security, and for IARPA, it is national intelligence. 

Operations

Set up the agency to function autonomously, with its own budget, staff and organization, and operating practices. An ARPA is a deliberate counterpoint to work already underway, originating from a recognition that something more and different is needed to achieve our national goals. An ARPA will not succeed if it is tightly integrated into its parent organization. Ironically, it may be more difficult to start a successful new ARPA in an area that already has robust federal research, because of the inclination to fit the square-peg ARPA into round-hole traditional research methods. The ARPA model is completely different than our well-honed approach to sponsoring fundamental research. The ARPA solutions-driven approach would not work well for greatly needed and highly valued basic research, and conversely, funding methods for fundamental research will not lead to ARPA-scale breakthroughs for our societal problems. This work is different, and it will require different people, different practices, and a different culture to succeed. 

Independent funding is also necessary. To develop a portfolio of programs with the potential for high impact, an ARPA requires funding that is sufficient to achieve its programs’ objectives. ARPA programs are sized not just to generate a new result, but to convincingly demonstrate a new approach, often across a variety of circumstances, in order to prove that the method can succeed and scale. 

The agency’s chain of command and Congressional authorizers and appropriators provide important oversight. However, the ARPA organization itself must bear the responsibility for designing, selecting, managing, and transitioning its programs. A new ARPA should report directly to the cabinet secretary to maintain independence and secure the support needed to achieve its mission. 

Authorities

Give the new ARPA flexible hiring and contracting authorities to draw new and extraordinary talent to the nation’s challenges. Flexible hiring mechanisms have proven to be very valuable in allowing ARPAs to attract the rare combination of expertise, vision, and execution required in great program managers. In addition, program managers must be able to contract with exceptional people and teams in companies, universities, nonprofits, and other government entities to achieve their aggressive program goals. ARPAs have used flexible contracting mechanisms to move fast and work effectively with all kinds of organizations, not just those already designed to work with government.

Flexible hiring and contracting authorities are extremely helpful tools for an ARPA organization. It’s worth noting, though, that flexible authorities by themselves do not an ARPA make. 

Leadership

Appoint an exceptional leadership team, hold them to a high standard for impact, and create room for them to deliver on the full potential of the ARPA model. A new ARPA’s director will be responsible for building an organization with people, practices, and culture honed for the mission of creating breakthroughs. This person must bring fresh and creative ways of looking at seemingly impossible problems, a rigorous approach to managing risk, a drive to achieve outsized impact, and an ability to lead people. A strong ethical orientation is also essential for a role that will grapple with the implications of powerful new capabilities for our society. 

The person to whom the ARPA director reports also plays an essential role. This individual must actively prevent others from trying to set the agenda for the ARPA. They enable the ARPA organization to hire program managers who don’t look like other department staff, undertake programs that conventional wisdom decries, manage programs actively, and develop a culture that celebrates bold risk-taking in pursuit of a great national purpose. They hold the ARPA organization accountable for the mission of creating breakthroughs and create room for the unconventional methods needed to realize that mission. 

Note that these four recommendations about purpose, independence, authorities, and leadership are interconnected. All are necessary to build the foundation for a successful new ARPA, and cherry-picking the easy ones will not work. 

Conclusion

A total of 87 years of experience across three different ARPA organizations have provided many lessons about how to build and run an organization that creates breakthroughs for an important national purpose. In establishing any new ARPA, both Congress and the Administration must create the space and allocate the resources that will allow it to flourish and realize its mission. 

Like its programs, a new ARPA will itself be a high-risk, high-reward experiment. If our challenges were modest, or if our current innovation methods were sufficient, there would be no need to try these kinds of experiments. But the problems we face today demand powerful new approaches. Adapting the ARPA model and aiming it at the most critical challenges ahead can create breakthroughs that redefine what is possible for our future. Let’s do everything possible to start new ARPAs on the right track/

Just a small group of nationally-ranked universities are awarded the majority of federal research funding. In 2018, a study found that out of more than 600 colleges and universities that received federal funding for science and engineering research, about 22 percent received over 90 percent of the funds. The equity and accessibility of these funds was the focus of this week’s Senate Appropriations Committee hearing held to discuss the budget that could be allotted to the National Science Foundation (NSF) in fiscal year 2022. During the hearing, NSF director Sethuraman Panchanathan emphasized that addressing research disparities and establishing far-reaching partnerships were priorities for the agency.

Disparities in research funding

Disparities in research funding can greatly harm the ability of students to enter scientific careers, and diminish the potential of the country’s scientific workforce overall. The institutions that received over 90 percent of federal science funding in 2018 served only 43 percent of all students in the U.S., and only 34 percent of students from underrepresented groups. So two-thirds of underrepresented minorities and almost 70 percent of Pell grant recipients (who are undergraduates with “exceptional financial needs”) have more limited access to valuable opportunities to participate in scientific research. At the same time, researchers argue that incorporating diverse perspectives and talents leads to more innovative solutions, and that not including underrepresented minorities in science will only harm the U.S.’ competitiveness.

NSF’s most well-known program to address research funding disparities is the Established Program to Stimulate Competitive Research (EPSCoR). This program, which is now over 40 years old, partners with institutions of higher education to stimulate sustainable improvements in research and development capacity in specific states. States (as well as U.S. territories and DC) become eligible for EPSCoR funding if they receive 0.75 percent or less of total NSF research and related activities funding over the previous three years. Studies have shown that states with EPSCoR funding increase the quality of their universities’ publications, and that they become more competitive for future federal research funding competitions. However, more research needs to be done to fully assess the program’s impact.

Expanded access to research funding a priority for the Biden Administration

The Biden Administration has emphasized the importance of addressing research funding accessibility in the FY 2022 skinny budget request, which highlights the President’s top spending priorities for the next year in advance of the release of the full request for each agency. Specifically, President Biden is requesting $100 million for programs that “aim to increase participation in science and engineering of individuals from racial and ethnic groups, who are traditionally underrepresented in these fields.” This funding is intended to support increasing science and engineering research and education capacity at Historically Black Colleges and Universities (HBCUs) and other Minority-Serving Institutions (MSIs), as well as research on recruitment and retention methods, mentorship programs, and curriculum development. Studies by the National Academies of Science, Engineering, and Medicine (NASEM) have determined that this type of funding is critical to ensure the success of underrepresented minority students.

Director Panchanathan’s priorities for NSF

During the hearing, Director Panchanathan echoed (46:05) that more needs to be done to tap into the U.S.’ potential scientific talent. His two main priorities for NSF are to increase access to scientific research through regional innovation accelerators and to strengthen partnerships with other agencies, including the Department of Energy (DOE) and its national laboratories. The regional accelerators would rely on an expanded EPSCoR program, as well as support from other NSF directorates. NSF is also working to expand artificial intelligence (AI) research to every state to tap into as much talent as possible. Last year, NSF distributed grants to develop seven AI institutes which have operations in 20 different states. Director Panchanathan hopes (46:45) to expand this further in the coming years. This idea of widely-distributed hubs aligns with a new proposal from FAS’ Day One Project that suggests a path forward for the creation of innovation ecosystems that would launch new startup ideas and cultivate the next generation of research and development talent.

Regarding strengthening partnerships with DOE, NSF collaborates with the agency on a variety of programs, including the development of new algorithms to bolster the security and efficiency of modern power grids, the creation of collaborative robots to assist humans with a variety of tasks, and the advancement of basic plasma research and education. NSF historically focuses on basic research, while DOE, and its national labs in particular, drive the commercialization of new technologies. Director Panchanathan aims (1:22:06) to further develop relationships with the agency to more closely connect NSF’s basic research strengths with DOE’s expertise in technology transfer and ensuring cutting-edge research and technologies are commercialized in the U.S., instead of by other countries. By fostering closer cooperation between NSF and the other federal science agencies, the U.S. will be able to better compete with countries, such as China, that aim to supplant the U.S. as world leader in critical technology and science fields.

The future of research and development in the U.S.

Both the Biden Administration and Congress would like to accelerate science and engineering education and research to boost the U.S.’ domestic growth and global competitiveness. In the formulation of the FY 2022 federal budget for science funding, there will be more discussions on Capitol Hill about how to bolster the country’s expertise in high-priority fields such as AI, climate science, quantum computing, clean energy, and biotechnology, and harmonize the approaches of the executive and legislative branches. We encourage the CSPI community to get involved in future CSPI calls to action, and serve as a scientific resource for policymakers.