Testimony of R. Neal Elliott , Associate Director for Research, for the U.S. Senate Committee on Energy and Natural Resources hearing on the Restoring America’s Manufacturing Leadership Through Energy Efficiency Act of 2009

Thank you for the opportunity to testify in support of the Restoring America's Manufacturing Leadership through Energy Efficiency Act of 2009. ACEEE feels that this bill represents an important complement to existing law. The timing of this bill is particularly important, as our country needs to prepare now if we are to be ready to seize a once-in-a-generation opportunity to influence the energy efficiency and sustainability of the manufacturing sector once it emerges from the current economic downturn. The manufacturing sector and its contributions to the nation's economy and jobs have been ignored for far too many years, and it is important that this neglect be reversed. This bill will make significant progress if all of its provisions are enacted and funded.

Manufacturing continues to represent an important component of the United States economy, accounting for about 14 percent of gross domestic product. The manufacturing sector was responsible for almost a third of national energy consumption in 2007. According to the National Association of Manufacturers, the U.S. share of global manufacturing output has remained constant at between 20 and 23 percent over the past decade, in spite of perceptions that U.S. manufacturing has been in rapid decline. In fact, economic data have shown that up until the recent economic downturn, U.S. manufacturing was increasingly healthy, having recovered from the energy price shocks of the first half of this decade. ACEEE's analysis released last summer suggested the manufacturing sector was poised to enter a period new capacity investments as the economy approached full utilization of existing capacity.

Beginning in the second quarter of 2008, however, manufacturing output in the U.S. began to decline as the economy began to slow, with all industries experiencing a sharp drop in production as demand for manufactured goods dropped precipitously in the last quarter of 2008. These firms are now hibernating in an attempt to survive the economic winter. They need the cash to preserve their manufacturing capacity and to retain the trained workforce necessary for a future return to operation when demand for manufactured goods recovers.

When the economy recovers, the manufacturing sector will find itself in need of significant investments in new manufacturing capacity, and will face the need for a trained workforce. This renewed investment in expanded and modernized manufacturing capacity will represent a unique opportunity not seen in over a generation. To accomplish this, however, the necessary infrastructure to support a more sustainable industrial base must be built now, before industry is fully ready to invest. This infrastructure will take several years to implement fully, but it will be needed in order for manufacturing companies to modernize, especially since we have underinvested in this infrastructure over the past decade. ACEEE research indicates that this infrastructure falls into five key categories:

• 1. New technologies, products and processes
• 2. Access to industry-specific technical expertise
• 3. Access to assessment and training services for workers
• 4. Availability of a trained and capable workforce, ranging from operators to senior engineering and management
• 5. Access to capital to make needed investments

The coming economic recovery will likely occur quite rapidly, since inventories are being drawn down. Once demand for manufactured goods recovers, industry will need to rapidly return to production. Firms will then need to invest in new capacity to meet increased market demands. This situation dictates that now is the time to invest in new sustainable capacity for these key resources and not wait till the recovery actually begins. If we are not prepared, we run the risk of locking in less efficient capacity for decades or losing manufacturing capacity and jobs to other parts of the world.

Over the past 15 years, federal policy makers have largely ignored the manufacturing sector at best, and actively worked to undermine the programs intended to serve this sector at worst. This neglect has occurred all while the sector has experienced an unprecedented series of challenges: the globalization of markets, energy price instabilities and global competition for resources, including both feedstocks and trained workforce.

Over the past decade, ITP has experienced significant reductions in funding and the attrition of experienced staff, seriously compromising its efficacy with funding for industry-specific research declining 84% since 2001, leaving the pipeline for new technologies and innovative practices empty. Concurrently, clarity of the program's goals and mission has been lost due to lack of senior leadership within the agency and in the prior administration. In spite of these challenges, the program has achieved continued success.

ACEEE commends Senator Bingaman and his colleagues for introducing the Restoring America's Manufacturing Leadership through Energy Efficiency Act of 2009 (S. 661). We feel this bill changes course on support for manufacturing, and complements the industry-specific research and development activities authorized in EISA Sec. 452, beginning to address many of the infrastructure needs we have identified for the support of greater energy efficiency and economic competitiveness of the U.S. manufacturing sector.

• The Industrial Energy Efficiency Grant Program (Sec. 2), Small Business Loans (Sec. 5), and Innovation in Industry Grants (Sec. 7) all address the most pressing current challenge facing manufacturing industries: a lack of access to capital. By providing available credit, these provisions support manufacturers who want to make investments in energy efficiency and capacity to manufacture innovative, new technologies.
• The Coordination of Research and Development of Energy Efficient Technologies for Industry (Sec. 3), Energy-Efficient Technologies Assessment (Sec. 4), Industry-Specific Roadmaps (Sec. 5) and Study of Advanced Energy Technology Manufacturing Capabilities (Sec. 8), are all excellent complements to the industry-specific research activities authorized by EISA Sec. 452, enabling the research needed to put new technologies, products and processes into the market to keep U.S. manufacturing efficient and competitive.
• ACEEE is particularly excited to see the inclusion of the Industrial Research and Assessment Centers (Sec. 5) provision. This proposal expands and enhances the aforementioned Industrial Assessment Center (IAC) program. The 26 university-based IACs play the role of providing access to expertise for small and medium-sized manufacturing facilities while also providing invaluable experience to students who participate in the plant assessments and supporting their faculty's interest in manufacturing energy efficiency. The proposals in this section expand and enhance the IAC program while maintaining the elements that have made the program so successful over its 33 year history. By expanding the number of centers, the benefits of assessments will become available to many industrial facilities not currently located near an existing IAC, and the number of graduates from the centers will increase significantly, helping to meet the trained workforce needs that have been identified by manufacturers as a key challenge facing the manufacturing sector.
• We also endorse the creation of an Industrial Technologies Steering Committee (Sec. 9) for U.S. Department of Energy's Industrial Technology Program. The past effectiveness of the program was in large part a result of its strong working relationship with private manufacturing companies that allowed the program's activities to be tailored to address the actual technology and market needs of industry, enabling manufacturers to become more efficient and competitive. Over the past eight years, we have seen this close coordination erode, and we feel that the creation of this committee will help reverse this trend.

Thank you again for the opportunity to testify in support of this bill, and we look forward to working with the committee to see that it is passed expeditiously. The manufacturing sector needs the infrastructure that is enabled by this bill more now than ever before.