Should USDA Pursue “Other Transaction Authority” to Encourage Decarbonization Technologies?

And now for something completely different…

At a recent Breakthrough Institute conference, I was surprised to hear that some agencies consider that the FARS (Federal Acquisition Regulations) hamper their innovation for various reasons, and have an alternative, called “Other Authorities”.  I am the last person to ask about purchasing or contracting or grants and agreements.  But perhaps other TSW-ites are more familiar with this world?  I met an interesting fellow named Arnab Datta who works for a group called Employ America. Here’s a link to a paper his group generated called “Seven Ways the Executive Branch Can Turbocharge Green Industrial Policy.”  Yes, indeed, it was a serious Coastal Wonkfest, and I was invited to add non-Coastal diversity.

I was thinking we’ve been trying to find commercial uses for woody material for some time in terms of fuels reduction on both private and public land,  for the last 30 or so years, and perhaps this authority might be useful to USDA. It seems to be related to green energy, and perhaps that’s not the best use of the material, but as Willy Sutton said.. “go where the money is”. Through bioenergy and natural climate solutions, perhaps USDA has hit the technology big time and should explore the opportunities that playing with the big technology folks unleashes.

The paper also has thoughts on demand-side use of government purchasing power.

By guaranteeing that demand will be there to validate new capacity, the government can ensure decarbonization progress in the event of a recession or other economic downturn.  While now commonly used for vaccine development, advance market commitments are only starting to be contemplated for green uses.

There are other interesting ideas in there, some possibly only comprehensible to economists in the TSW community.

Here’s their  write-up on Other Authorities. Who knew the gory details of DARPA procurement? Or wondered how the fed $ got to Pfizer and J&J?

Given the technological and commercial uncertainty inherent in the green energy transition, agencies should be prepared to use every tool at their disposal to meet contingencies. OTA is one such tool. While it has been most successfully utilized by the Defense Advanced Research Projects Agency (DARPA), it has been granted to 11 agencies (with varying restrictions).43 Table 1, below, lists the agencies with OTA powers. OTAs have been extended to more agencies as the tool’s efficacy was consistently demonstrated. In 1989, Congress passed the National Defense Authorization Act for Fiscal Years 1990 and 1991, which granted DARPA the flexibility to enter into agreements through other transactions.  In the following years, Congress expanded that authority to include prototype development, research, and making advance market commitments.46 In 2016, the OTA was expanded even further to allow follow-on production authority, which permitted successful prototypes to enter full production without the red tape or onerous requirements that tend to benefit larger businesses with compliance budgets. This Congressional expansion was pivotal in the wake of the COVID-19 pandemic, as both the Johnson & Johnson and Pfizer vaccines were purchased using OTAs.

DARPA’s use of OTA for vaccine development is one example of many in the expansive use of OTAs for promotion of technological advancement. In the early 1990s, DARPA used OTA to enter into an agreement with seven jet engine manufacturers, NASA, and the United States Air Force to create a joint-funding agreement for the Integrated High-Performance Turbine Engine Technology program. A major goal of the program was to advance aircraft and missile turbine engines by using ceramic matrix composite components. Today’s most efficient and high-performing jet engines, such as the F119 and F-135, have better oxidation at higher temperatures, fly longer, and weigh less because of these ceramic matrix composite components. There is a vital through line connecting OTA investment in ceramic fiber research and production and today’s cutting-edge jet engines.

OTA contracts can be structured to benefit the government’s balance sheet, rather than simply “giving away” funding to the private sector. DARPA has used its OTA to reap significant returns on its investment and scale up innovative technology for commercial use. In the 1990s, DARPA provided funds to the Environmental Research Institute of Michigan at Ann Arbor (ERIM) to create an interferometric synthetic aperture radar for terrain elevation mapping. The radar provided necessary military capabilities for terrain and elevation data collection and analysis in any weather conditions, day or night. Unfortunately, no DOD office had sufficient operating funds to maintain full ownership of the radar. Rather than abandon the project, DARPA was able to use an OTA to contract out the radar for commercial purposes. In technical terms, DARPA initiated an OTA with DARPA; ERIM; and a private company, Intermap USA, in which the company agreed to pay all operating, maintenance, and upgrade costs of the radar. Intermap paid royalties to DARPA for the radar and DARPA eventually recouped the complete cost of the radar’s development through this licensing agreement.51 The radar formed the basis of Intermap’s mapping technology, and as the company improved the radar, it became a leading firm in geospatial content development. By using OTA to lower operating costs on a ucial radar and receive payment for the investment in the radar, DARPA saved millions of dollars while helping advance the technological frontier.

NASA has also used OTA to stimulate the commercial market for innovative technologies. In 2006, NASA created the Commercial Orbital Transportation Services program with the goal of advancing private technologies for space transportation services. NASA awarded funding under its OTA through the Commercial Orbital Transportation Services program to SpaceX, which resulted in the Falcon 9 launch—“the first private rocket capable of carrying humans to space.” From 2006 to 2014, NASA obligated more than $2.2 billion of appropriated funds under OTA to spur public-private partnerships and advance national space initiatives.

Finally, OTA can be used to overcome hurdles that are limiting private participation in federal contracts. In 2010, the Department of Energy’s Advanced Research Projects Agency-Energy (ARPA-E) entered into an OTA agreement with an oil company to research and develop new drilling technology with the goal of improving the performance of geothermal energy wells.  ARPA-E estimated that this technology could unlock 100,000 or more megawatts of geothermal energy by 2050. However, the company was concerned about “march-in rights” that allowed the government to take control of a patent if certain conditions were not met. In response, ARPA-E crafted an OTA that addressed the company’s concerns. While there are sound reasons why the federal government may want to “nationalize” intellectual property in certain situations,  OTA provides the flexibility to go in another direction if existing intellectual property restrictions are severely limiting private participation.

Furthermore, ARPA-E included a clause requiring any invention developed under the agreement to be substantially manufactured in the United States—promoting domestic manufacturing through an OTA agreement.
These examples demonstrate that OTA provides agencies the authority to engage in creative contractual structures in a manner that can overcome roadblocks to private investment and development while achieving important public policy purposes. The 11 agencies face some limitations on their OTAs; a helpful summary is available in Table 1 below.  Decarbonization is an all-hands-on-deck challenge, and each agency should strive to use their OTA alongside flexible appropriations to connect their missions and goals with the steps needed to advance the green energy transition.

I posted Table 1 in an image above.

While every agency should review their OTA in alignment with the green energy transition, DOE and ARPA-E’s missions are well aligned to the goals of green industrial policy. With permanent OTA, ARPAE is in the best position to ensure long-term, innovative, clean energy solutions. The ARPA-E director has complete discretion in utilizing OTAs. Though Congress provided the DOE with ample oversight in entering into agreements through other transactions, DOE has not taken full advantage of its authority. From 2010-2014, DOE entered into 14 OTA agreements and ARPA-E had 12 OTA agreements, while NASA completed more than 13,000 OTA agreements in the same four-year span. 8 ARPA-E was appropriated $450 million in FY 2022 and currently has $755 million unobligated that could be used to further ARPA-E’s mission to “decrease our nation’s dependence on foreign energy sources, reduce greenhouse gas emissions, improve energy efficiency across the board, and maintain or reestablish U.S. scientific leadership in the energy sector.” Department of Energy Secretary Jennifer Granholm and Dr. Jennifer Gerbi, the Acting Director of ARPA-E, should be exploring opportunities to “stretch” the appropriated and unobligated funds to enhance the United States’ energy security by advancing green industrial policy to ensure resilient and long-lasting clean energy  infrastructure.

Decarbonization is a far heavier lift than the Space Race. Back then, we only had to put one ship on the moon. Today’s challenges require the government to engage with nearly every sector of the economy. As in 1958, when OTA was first authorized, we face a generational challenge that will require unprecedented coordination, collaboration, and dedication between the federal government and private industry. As the price of energy continues to rise, families across the country remain subject to the market risks that cause inflationary pressure and price volatility in fossil fuels. It is time for every OTA to be scrutinized and utilized to promote economies of scale through deflationary sources of energy by accelerating investments in the green energy transition.