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Research and Development: Lessons Learned from Previous Research 
Could Benefit FreedomCAR Initiative (06-JUN-02, GAO-02-810T).	 
                                                                 
The federal government has spent billions of dollars attempting  
to reduce the consumption of petroleum in the transportation	 
sector for over 25 years. Throughout the period, the government  
has tried tax incentives, mandates to use vehicles that run on	 
alternative fuels, and laws designed to enhance fuel efficiency. 
More recently, the federal government conducted a $1.2 billion	 
partnership between industry and government, the Partnership for 
a New Generation of Vehicle, to develop a highly fuel-efficient  
car. The administration has proposed a new initiative, known as  
FreedomCAR, focused on developing hydrogen fuel cells that will  
provide the technology necessary to create cars and trucks that  
do not require petroleum and have no polluting emissions--without
sacrificing safety or convenience. FreedomCAR will operate as a  
cooperative research effort between the Department of Energy and 
General Motors, Daimler-Chrysler, and the Ford Motor Company. The
FreedomCAR initiative should make sure that it (1) performs	 
research that private industry would not do on its own, (2)	 
specifies a clear and measurable goal, (3) devises a strategy to 
directly address that goal, and (4) considers whether consumers  
will buy the products resulting from the research and		 
development.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-810T					        
    ACCNO:   A03517						        
  TITLE:     Research and Development: Lessons Learned from Previous  
Research 
							 
Could Benefit FreedomCAR Initiative				 
     DATE:   06/06/2002 
  SUBJECT:   Alternative energy sources 			 
	     Automobile industry				 
	     Energy conservation				 
	     Energy consumption 				 
	     Energy research					 
	     Motor vehicles					 
	     Research and development				 
	     Transportation research				 
	     Best practices					 
	     Commerce Advanced Technology Program		 
	     FreedomCAR Initiative				 
	     Partnership for a New Generation of		 
	     Vehicles						 
                                                                 

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GAO-02-810T
     
Testimony Before the Subcommittee on Oversight and Investigations, Committee
on Energy and Commerce, House of Representatives

United States General Accounting Office

GAO For Release on Delivery Expected at 9: 30 a. m., EDT Thursday, June 6,
2002 RESEARCH AND

DEVELOPMENT Lessons Learned from Previous Research Could Benefit FreedomCAR
Initiative

Statement of Jim Wells, Director Natural Resources and the Environment

GAO- 02- 810T

Page 1 GAO- 02- 810T Research and Development

Mr. Chairman and Members of the Subcommittee We are pleased to be here to
discuss our previous work on federal research and development (R& D)
initiatives that provide some useful insight as Congress considers the
FreedomCAR initiative. 1 As you know, one of the major challenges facing the
nation is to reduce the consumption of petroleum in the transportation
sector. Transportation represented about two- thirds of total U. S.
petroleum consumption and roughly onequarter of total national energy
consumption. Furthermore, the United States consumes about 45 percent of the
gasoline consumed in the world. The nation?s continued reliance on petroleum
makes the sector highly vulnerable to the uncertainties of the world oil
market and greatly increases the difficulty of achieving clean air
objectives.

Over the past 25 years, the federal government has spent billions of dollars
attempting to reduce the consumption of petroleum in the transportation
sector. Throughout the period, we have tried a variety of means, such as tax
incentives, mandates to use vehicles that run on alternative fuels, and laws
designed to enhance fuel efficiency. More recently, the federal government
conducted a $1. 2 billion partnership between industry and government, the
Partnership for a New Generation of Vehicle (PNGV), which focused on
developing a highly fuel- efficient car. Clearly, some of these efforts,
along with industry advances, have made many vehicles more fuel- efficient
and less polluting than vehicles were a generation ago. However, any gains
in fuel efficiency have been outpaced by increases in the total miles driven
and the growing popularity of less fuel- efficient sport utility vehicles
and light trucks. As a result, as shown in figure 1, the total amount of
petroleum our vehicles consume continues to rise.

1 See Related GAO Products.

Page 2 GAO- 02- 810T Research and Development

Figure 1: Trends in Motor Vehicle Consumption of Petroleum and Alternative
Fuels, 1992 through 2001

Note 1: Alternative fuels include ethanol and MTBE used as oxygenates in
gasoline. Note 2: Year 2002 data are forecasts. Source: Energy Information
Administration.

Further, about 97 percent of the total motor vehicle fuel consumption comes
from petroleum. This is because consumers have not widely embraced vehicles
that run on alternative fuels, such as natural gas, ethanol, or liquefied
petroleum gas. As we have reported, these vehicles are often more expensive
than traditional vehicles, few refueling stations are available, and the
price of gasoline is lower today in real terms than the 30- cents- per-
gallon gasoline sold in 1960. 2

2 U. S. General Accounting Office, GAO/ RCED- 00- 59, Energy Policy Act of
1992: Limited Progress in Acquiring Alternative Fuel Vehicles and Reaching
Fuel Goals (Washington, D. C.: Feb. 11, 2000).

Page 3 GAO- 02- 810T Research and Development

In this context, the Administration has proposed a new initiative, known as
FreedomCAR. Although the initiative is still in its early stages, it appears
to be focused on developing hydrogen fuel cells that will provide the
technology necessary to create cars and trucks that are free from petroleum
and have no polluting emissions- without sacrificing safety or convenience.
FreedomCAR will operate as a cooperative research effort between the
Department of Energy and the automakers General Motors, Daimler- Chrysler,
and the Ford Motor Company. The department has requested $150 million for
FreedomCAR in fiscal year 2003 and will require additional funding for the
initiative over the next 10 to 15 years.

As Congress considers the FreedomCAR initiative or any comparable federally
sponsored research program, we would like to suggest four themes for
congressional oversight, based on the lessons learned from 20 years of our
work on R& D in many areas. Specifically, as you oversee the initiative, you
may want to make sure that it

1. performs research that private industry would not do on its own, 2.
specifies a clear and measurable goal, 3. devises a strategy to directly
address that goal, and 4. considers whether consumers will buy the products
resulting from the

R& D. While these lessons seem like common sense, let me elaborate a bit on
each, using examples from previous GAO work to show how each is crucial to
an R& D project?s success.

To ensure federal funds are being spent wisely, it is important to ask,

?Would the private sector do the research without government funding??
Federal R& D programs have not always considered whether the federal funding
is merely displacing private research rather than spawning new work. For
example, when we spoke a few years ago to participants in the Department of
Commerce?s Advanced Technology Program (ATP), about 40 percent of program
participants told us they would have performed the research done as part of
the program even without federal funding. 3 Before

3 U. S. General Accounting Office, GAO/ RCED- 96- 47, Measuring Performance:
The Advanced Technology Program and Private- Sector Funding (Washington, D.
C.: Jan 11, 1996). Perform Research

That Private Industry Would Not Do on Its Own

Page 4 GAO- 02- 810T Research and Development

funding particular ATP projects, the Department of Commerce now considers
whether industry would perform the R& D even without federal funding.

To be effective, any R& D program must be directed towards a clear goal and
be reassessed periodically to see if the goal is still worth pursuing. For
example, we noted that SEMATECH, the federal and industry consortium formed
in 1987, succeeded in part because it clearly articulated both a goal-
improve the competitiveness of U. S. manufacturing in semiconductors- and a
method to achieve this goal- by building a stateof- the- art semiconductor
using only equipment built in the United States. 4 In contrast, in 2000, we
said a significant problem with the Department of Energy?s performance plans
for its ?Science and Technology? business line was that the department did
not clearly articulate its goals. 5 For example, the department sought as a
goal to ?pursue technology research partnerships with industry, academia,
and other government agencies? without stating why it wanted to do so or how
the goal helped to achieve the department?s overall missions. We also
reported that, although the PNGV began with a clear goal of developing a
highly fuel efficient family sedan, the partnership did not later reassess
the goal as consumer tastes shifted away from family sedans and towards
light trucks and sport utility vehicles. 6

Although it may sound surprising, government- sponsored R& D programs have
sometimes articulated a goal but then devised a strategy that did not
directly address the goal. For example, in 2000, we noted that the
Department of Energy sought to achieve one of its performance goals,

?diversify the international supply of oil and gas,? in part by continuing

?leadership in international energy initiatives?- a strategy that seems 4 U.
S. General Accounting Office, GAO/ RCED- 92- 223BR, Federal Research:
SEMATECH?s Technological Progress and Proposed R& D Program (Washington, D.
C.: Jul. 16, 1992). 5 U. S. General Accounting Office, GAO/ RCED- 00- 268R,
Government Performance and

Results Act: Information on Science Issues in the Department of Energy?s
Accountability Report for Fiscal Year 1999 and Performance Plans for Fiscal
Years 2000 and 2001 (Washington, D. C.: Aug. 25, 2000). 6 U. S. General
Accounting Office, GAO/ RCED- 00- 81, Cooperative Research: Results of

U. S.-- Industry Partnership to Develop a New Generation of Vehicles
(Washington, D. C.: Mar. 30, 2000). Specify a Clear,

Measurable Goal Devise a Strategy That Directly Addresses the Goal

Page 5 GAO- 02- 810T Research and Development

somewhat vague and only tangentially related to the goal. 7 Similarly, the
Energy Policy Act of 1992 established goals that alternative fuels replace
at least 10 percent of petroleum fuels used in transportation by 2000 and at
least 30 percent of petroleum fuels projected to be consumed in 2010.
However, as we discussed in a 2000 report, the act?s strategy mandated
purchasing of alternative fuel vehicles rather than targeting the use of
alternative fuels. 8 We noted that since some of these vehicles also run on
gasoline, drivers often used gasoline in these vehicles, either because they
were unaware the car could run on an alternative fuel, or because not many
refueling stations are available for alternative fuels. As you consider the
FreedomCAR initiative, it is important to recognize, as was the case with
the alternative fuel efforts, that there is a lack of infrastructure for
fuels other than gasoline, as shown in figure 2. This lack of infrastructure
could pose a significant challenge to the implementation of FreedomCAR if
the vehicles it develops run on fuels other than gasoline.

7 U. S. General Accounting Office, GAO/ RCED- 00- 209R, Observations on the
Department of Energy?s Fiscal Year 1999 Accountability Report and Fiscal
Year 2000/ 2001 Performance Plans (Washington, D. C.: Jun. 30, 2000). 8 U.
S. General Accounting Office, GAO/ RCED- 00- 59, Energy Policy Act of 1992:
Limited

Progress in Acquiring Alternative Fuel Vehicles and Reaching Fuel Goals
(Washington, D. C.: Feb. 11, 2000).

Page 6 GAO- 02- 810T Research and Development

Figure 2: Density of Refueling Stations for Gasoline and Alternative Fuels,
1999

Note: Each dot represents 10 refueling stations in the state, rounded up to
the next highest 10 (e. g., a geographic location of stations in the state.

Source: Energy Information Administration.

Even when an R& D program at the outset clearly defines where it wants to go
and creates a logical strategy to get there, things often change along the
way- new technologies develop, better approaches are found, and

Page 7 GAO- 02- 810T Research and Development

consumer tastes or needs change. As a result, those who manage R& D programs
should consistently build in ?reality checks? to ensure the strategy still
helps to achieve the goals. Planners need to establish interim milestones
that are meaningful, achievable, and can be reconsidered as the project
progresses. For example, although the PNGV did not achieve its ultimate
goal, the partnership did incorporate interim milestones that allowed it to
reevaluate the progress of research efforts and reallocate spending towards
the most promising technologies. 9

Research for its own sake can deliver basic scientific discovery and expand
general human understanding, but to increase energy efficiency and reduce
the reliance on oil, the FreedomCAR program must remain focused on
developing technologies that are competitive in the marketplace.
Unfortunately, in some of our work, we have seen that federal research
sometimes produces compelling technical accomplishments, but few marketable
products. In 1995, we reported that, although the U. S. Advanced Battery
Consortium could potentially achieve its intermediate technical goals, the
resulting batteries would be too expensive and would perform too poorly to
enable electric cars equipped with them to be competitive with traditional
automobiles. 10 In our report on the PNGV, we noted that the partnership
developed some products that car manufacturers adopted into their existing
vehicles. However, industry officials told us that consumers would probably
not buy the vehicle the Partnership sought to create because the costs would
be too high. 11

In conclusion, Mr. Chairman, the FreedomCAR initiative?s plan to develop
fuel cell technologies represents an exciting area of research. Yet, based
on our reviews of previous federal R& D initiatives, it will be critical for
the initiative to keep one eye on achieving technical goals and one eye on
the marketplace. Moreover, the ultimate success of the new FreedomCAR
initiative should be judged by its contribution towards reducing the

9 See GAO/ RCED- 00- 81. 10 U. S. General Accounting Office, GAO/ RCED- 95-
234, Electric Vehicles: Efforts to Complete Advanced Battery Development
Will Require More Time and Funding

(Washington, D. C.: Aug. 17, 1995). 11 See GAO/ RCED- 00- 81. Consider
Whether

Consumers Will Buy the Product

Page 8 GAO- 02- 810T Research and Development

nation?s use of petroleum in transportation, rather than by reaching
specific technical R& D goals.

Mr. Chairman this concludes my prepared remarks. We would be pleased to
answer any questions you or any Members of the Subcommittee may have.

Contacts and Acknowledgements

For further information, please contact Jim Wells at (202) 512- 3841. Key
contributors to this testimony included Jim Wells, Dan Haas, Vondalee Hunt,
Jon Ludwigson, Ilene Pollack, and Daren Sweeney.

Page 9 GAO- 02- 810T Research and Development

Cooperative Research: Results of U. S.-- Industry Partnership to Develop a
New Generation of Vehicles. GAO/ RCED- 00- 81. Washington, D. C. March 30,
2000.

Energy Policy Act of 1992: Limited Progress in Acquiring Alternative Fuel
Vehicles and Reaching Fuel Goals. GAO/ RCED- 00- 59. Washington, D. C.
February 11, 2000.

Government Performance and Results Act: Information on Science Issues in the
Department of Energy?s Accountability Report for Fiscal Year 1999 and
Performance Plans for Fiscal Years 2000 and 2001.

GAO/ RCED- 00- 268R. Washington, D. C. August 25, 2000.

Observations on the Department of Energy?s Fiscal Year 1999 Accountability
Report and Fiscal Year 2000/ 2001 Performance Plans

GAO/ RCED- 00- 209R. Washington, D. C. June 30, 2000.

Department of Energy: Proposed Budget in Support of the President?s Climate
Change Technology Initiative. GAO/ RCED- 98- 147. Washington, D. C. April
10, 1998.

Federal Research: Challenges to Implementing the Advanced Technology
Program. GAO/ RCED/ OCE- 98- 83R. Washington, D. C. March 2, 1998.

Measuring Performance: The Advanced Technology Program and Private- Sector
Funding. GAO/ RCED- 96- 47. Washington, D. C. January 11, 1996.

Electric Vehicles: Efforts to Complete Advanced Battery Development Will
Require More Time and Funding. GAO/ RCED- 95- 234. Washington, D. C. August
17, 1995.

Federal Research: SEMATECH?s Technological Progress and Proposed R& D
Program. GAO/ RCED- 92- 223BR. Washington, D. C. July 16, 1992. Related GAO
Products

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*** End of document. ***
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