report of the american energy innovation council of the role of government and developing energy technologies what the

business leaders of the council have a long track record of commercial success, building technology companies that compete in the marketplace and make a strong case in the report the with the government as a part of the united states can continue to lead in the clean energy sector. as all of the witnesses today point out in their written testimony there's a global race to produce the next generation of energy technologies, the prices on our electricity bills or at the pump do not always reflected our current energy system is very expensive, and the costs all of us pay in national energy and climate and economic security are unacceptably high, and it's likely the fast-growing economies throughout the developing world will be looking to a new generation of technologies that of lead these

costs. it's not only a concern about costs and their effect on future generations, it's also a significant commercial opportunity for u.s. entrepreneurs. fortunately, developing new technologies has historically been a great strength in the united states to come and as a witness is pointing of in the area where the government has been an effective partner although there has been a broad consensus in congress in the past and favor of investing in these emerging technologies we've been sending much more uncertain signals recently come important support programs have either already expired or appear to be in danger of expiring, and despite repeated calls to address the problems of the so-called valley of death the initial deployment incident expanding on crucial programs, some in congress are looking to end these programs the we have

in place. meanwhile, our competitors and potential competitors in the developing world continue to press ahead to court new energy companies and the talent that would develop the next innovations in this area as these technologies continue to improve and become more cost competitive we should view this as an opportunity to take a global leadership position. we have some of the best minds in the world working on this problem. it's very much in our national interest to show them a clear-cut way towards developing and deploying these technologies here and exporting them abroad rather than forcing them to go overseas to find opportunities. i've said many times i believe the only losers in the clean energy technology race will be those that fail to participate, and i hope the recent paralysis' we have seen in the congress doesn't lead us to miss this opportunity to read the

witnesses testifying today have given a great deal of fought to what leads to success in developing new technologies. i look forward to hearing about their conclusions and what we can do here to put american entrepreneurs and in the best position to succeed in this vital area and we call on senator murkowski and acknowledge this is her birthday and we were delayed just a minute while we were celebrating that in the back rent would with as a committee as we advance in the good strong energy policy for this nation using the ingenuity, the opportunity that we have as a nation to build on all of our strength, so thank you for that recognition. i'd like to welcome mraugustine to the committee here this morning and also

mr. jenkins. it was your report on competitiveness, rising above the gathering storm that serve as a foundation for legislation that passed by an overwhelming margin back in a 07. it wouldn't surprise me if your work on energy innovation encapsulate in the report that was going to hear of today. ultimately could lead to a similar result. i think most would agree that it's time for us to renew a coherent long-term approach energy development in all of the above approach, innovation and of course is absolutely at the core of that strategy. i think it is one of the few areas where the government can and should be providing greater funding and at the same time i am aware that if we do decide to spend more on energy innovation we have to make very difficult choices about the amount of spending and the duration as well as what our priorities are. a couple of comments and each of

these areas. first the obvious. investment is the code for spending and that is going to require taxpayers' dollars with our debt situations sitting at $15 trillion right now greater spending in this area is going to need to be offset and challenging to find space in the budget, but i think it also presents an opportunity here to be financially creative let's figure out how we make this work. that is a priority and focus on it. for years now i've suggested a portion of the revenues from increased production should be devoted to energy innovation. it is a key part of the legislation which would raise an estimated $150 billion to the federal treasury at today's prices even a fraction of the revenues could go a long way towards developing the resources and the technology that will rely on the features we are glad to see the energy listed as a possibility in the catalyzing american ingenuity report. now we on how much we spend i think we also need to think

carefully about the pretty. and when we look back at where the taxpayers' dollars have been spent in recent years i think it's clear that we haven't really gotten to that all of the above policy. we can see that and how much the federal government spent on solar and wind as opposed to the other areas. i am always pointing out the opportunity that we have with the methane hydrates. we can see that in the direction the administration has taken in choosing to focus on electric vehicles perhaps as compared to other promising alternatives. finally point about how long should be involved here. it makes sense to invest in energy r&d. that's clearly in our interest but it's against our interest to keep subsidizing the same resources and technologies year after year without a clear path towards allowing the technologies to stand on their own in the market to strike the right balance the will require reform as existing programs possibly in the phase-out of many of the subsidies that are

currently in place. some experts believe federal efforts should be oriented more towards basic research and away from deployment because the fiscal climate the government should spend on know whether institution fund i can't believe cocaine to agree with that approach. i think when it comes to energy inefficient we have a lot of thinking to read a lot of decisions to make, and i hope that with the hearing this morning we will have an opportunity to explore again. i appreciate the good work that's gone into the report. thank you, mr. chairman. >> the first panel is norman augustine, the retired chairman and ceo of lockheed martin corporation. he's been a witness before our committee many times in the past, and we welcome him back and look forward to any comments he has about the report and what he thinks the congress ought to do. go right ahead.

>> thankyou mr. chaian and members of the committee for this opportunity to share with you some thoughts on america's energy future. i will be drawing as was mentioned on the work of the american energy innovation council an informal group of seven of the sticking together because of our concern on the under investment in energy r&d in our nation. the names of the other six members are in the written statement that i would like to provide for the record. >> we will include the entire report in our record. >> thank you. i also should acknowledge we have received excellent technical and administrative support from the bipartisan council organization formed by former colleagues. today i'm not able to speak directly for - zero season this project because we are a highly informal group. on the letter and i think my comments will closely reflect

those of the entire group because there's little difference among us on this issue. we've prepared to reports that first of all those had to do with the underfunding of research development in the energy area in our country both by the government and the private sector. we also cannot strongly for supporting which i think has exceeded both of your expectations to date. the second report we put out deals with the need for the government to involve itself in energy research and development, and i will speak more to that in my remarks. it's probably fair to note we are not a group that general powell comes government involvement in the private sector business and industry to reason being it forms distortions with the way people behave in our competitiveness globally. on the other hand there are certainly areas where there are

programs that are of importance to the citizenry, but which the private sector can't or won't invest, and those would seem to me to be exactly the sort of thing the government are designed to do and indeed our government has done in the past. there are two areas where the private sector particularly reluctant to invest the first of these has become known as the valley of death in detention of energy research think there's a second of valley, also a second valley of death if you will. the first of these describes a situation where basic research leads to a promising idea but is not yet been proven to be feasible in practice and it is very risky because applying research is a long-term proposition in terms of time. it produces failure even when it

succeeds, the performer or the founder of the work may not be a beneficiary. yet the work may benefit society as a whole. the second challenge in the case of the energy field is capital-intensive and that tends to discourage new entrants into the marketplace and also discourages putting new ideas in the marketplace because they're so disruptive to the investment that's in place. the government of course has many options to the support of energy research and development and the evidence that the energy in general this goes all the way from contracts and grants to direct involvement in the marketplace regulation to the tax policy in kind support and more and we've done things in

the past we are all familiar with. one thing that one certainly

and in the regard i believe it is our ability to solve the energy challenge has really just a microcosm of a very important microcosm in america's position in the overall competitiveness arena in today's global marketplace. sophos opening comments, mr. chairman, members of the committee i would be happy to address any questions that you may have. >> thank you very much and thanks for all the work that went into this and other reports

that u.s. champion and have been involved in. let me start with a couple of questions. whenever we get into this discussion it strikes me that a major change in the environment, which needs to be acknowledged as we talk about what role should our government play in working with industries in these areas a major change in the environment is what is happening with other governmental support around the world. and i think that for a lot of our history the involvement of the government in order to insist and work with a partner in industry to be successful was not really required to retreat extent. a lot of exceptions to that. but it strikes me that when you look at what's happening in the renewable energy technology

development now worldwide, you have a very aggressive efforts going on by the germans, the chinese, by various other companies to only further develop the technology, but also help with the commercialization of technology and the capturing of the jobs that result from that technology and that puts a new importance on our own government finding the right level of involvement, the right type of involvement to have in the same area. i don't know if you have thoughts about that. >> i would certainly agree with your conclusion that things have changed greatly. we do have the foreign government is very much and they're supporting so-called

private sector, and i've learned the hard william my own experience private companies can compete with government whether it be another government or our own, and so i think it does and unfortunate thing that's taking place. on the other hand think it is a fact of life my hope is the government would have to involve itself only to the extent one helping preserve a level playing field so companies can compete fairly internationally in a second of our government would support those things the private sector can't do or want to that the government has done for many years all the way from building highways to pingree surgeon please replace the internet or gps or these other things we take for granted now. so yes, it is a changed world. other governments are deeply involved coming into the first iraqi of our government should be to encourage other

governments to limit to the second i described and not to become active participants in the marketplace. i guess the piece of good news is the governments have become overly involved is that when they make a mistake usually it's a big one in the carries throughout the economy so i think there are goo reasons for our government supporting itself as it has in the pt but we cannot hide from the realities of today. >> a follow-on to that question, we love to give speeches a round t congresshow the government shouldn't pick winners and losers coming and like most of these statements, it is a clear simple formulation that as a charming and pointed out and is almost always wrong you pointed out that it's been a great success so far, and of

course darpa has been a great success over decades. has operated in thend the way way that speech to the to arapae is operating. they try to pick the winners. it doesn't always do it and it doesn't always make big bets in a relative sense, but it certainly tries to identify those areas of technology development that have great promise for the country, and you mentioned some of them from the internet and gps, some of the letters that have proven to be very useful and have been winners. i would be interested in any thoughts you have on picking winners and losers. >> the certainly is the first accusation that is made you

don't want the government picking winners and losers and if you need that simplistic i guess i would agree with a comment. the problem is into a real world the government has to pick winners and losers every day. who wins contracts, who gets grants for research, what projects are continued, what gets canceled, and that is once again a fact of lie. there are tees if the government is going to have to make difficult choices, which the government has to do. the first of those is the government competitionto the maximum extent so everybody has a fair shot and contributing and being involved. second, whatever is done should be highly transparent, and the third thing i think that needs to be done is to have come to ensure that we have competent people in our government who are able to make sensible judgments

without conflict and given those criteria, i believe the government not only can, but it has to make the choices to pick winners and losers. you cited many other parts of the government to test. i would also add to the list early on there's a certain parallel. it was given a number of tools in its tool kit by the congress to give the gransta con with dvice and advise you it's been successful carrying out its mission so it would be another example. they make choices every day. >> thank you very much, senator murkowski. >> mr. augustine and the report you have concluded that we could have a great impact if we focus

on energy r&d. others have said that the focus for the major impact should be on the deployment. as we are trying to figure out how we allocate scarce dollars and how we prioritize what part of the technology chain do you figure we in the government here should be focusing on the most cracks >> that is a difficult question. if you don't focus on research there will be nothing to deploy and on the other hand if you kiss on the research to will be nobody to deploy the benefits so you need to do both. as it happens research costs an awful lot less congenital than deployment or approval of principal skilling samore money

is available ford of the latter even though ideally the rules the government is more easily justified focus on research it used to e that the u.s. government and when i see used to enter into or three decades ago provided two-thirds of the research development in this country, today it spends about a third. the problem is the industry which has picked up the two-thirds now spends almost entirely on d and is getting out of the r example. the last is a classic example and i have my own experience in that regard. my short answer is we need to do both. where do you focus? i.t. key focus on the rallies of death. how do you take just basic research ideas that get funded by the national science foundation and places like that

and how do you turn them into engineering projects and then secondly how to get across the valley which is scale ability and in all cases i think the industry should -- the beneficiaries should have some of their own investment and make some skin in the game. >> it's trying to find that balance and determining where you have those areas where the private sector isn't willing or able to be involved in how we define all that is of course far more difficult than it might sound. with me ask about how we pay for all of this innovation. in my opening statement i mentioned one of the things i think makes sense is to take certain revenue from greater domestic energy production to help pay for a renovation.

your report outlines that as one of the options i appreciate that some of the other possibilities include raising energy prices, but that's tough for us right now. i think we'll get that. i'm reading your language that they do not advocate one revenue option over another so that is probably your out there. what does one of the individuals on the committee here, do you think that there is one approach that is perhaps better than the of years hat you outlined? >> i suspect some of the approach is also why do have some that are personally better than others and the reason we didn't try to make the choice is we simply didn't have enough detail to take a strong position. today as you all know, we will send a billion dollars overseas

today to foreign countries to pay the debt cost to the leal that we buy. for the last few years we've been averaging in the order of $2 billion a year on energy are in the in that year, and that suggests to me that there's great opportunity to find the kind of money to we need to triple the r&d which is where our group is recommended. the very sources of that certainly fighting back in my own case of probably 25 years ago or more was proposing that we add three or four sets to the cost of a gallon of gasoline back when gasoline cost 50 cents a gallon i can't even recall when it costs 19 cents a gallon and i said let's add two or 3 cents and put money into research and development and my economist friends told me i would destroy the economy if we did that.

today before and a half gallon, and the money goes to other nations and a few of them would like to kill us with the money that we sent to them so there is clearly something wrong with that model. i would hope that we would in fact provide the tax if you will on some of the energy sources particularly those that are high polluting sources much along lines you see yes did. i personally don't have a problem with a modest tax of the gas pump but i realize it' a very difficult issue today. but the idea of having these in the industry that most benefits in the long term pay part of the cost seems appropriate to me particularly when you have an industry that is spending maybe half a percent of its sales or

revenues. the industry came to present, pharmaceutical industry spends 20% of electronics around 13. it seems not on reasonable given the importance of the modest pain and could buy some of east texas i'm not a tax dodge a but it seems worth the price. >> i appreciate your comments. i have long held the one of the ways to get to our energy future is using those revenues from our fossil fuels to help build the technology, the innovation to in advance us to the next generation of energy. appreciate your comments. >> senator udall. >> thank you to the ranking member for holding the very important during on innovation. always good to see you,

mr. augustine, thank you for your continued service to the country and your ideas are always spot on. the american innovation council has done work here, and i hope we will listen to and implement your recommendations. as you have pointed out here in the midst of a clean energy revolution, and by that i think we mean all energy sources and technologies can have clean elements. we can't have as you point out inconsistent and uncertain innovation policies. that's why you've underscore during this hearing again is so important. i have in my notes and i said to myself we need to be leaders in this field and we've always been a paragon of information but i think about the fact we have been leaders particularly in every energy technology but i think about it in solar and wind for example in the 70's and now we are trying to play catch-up with some countries that have

seen the possibility. you know colorado i am honored to represent the state of colorado. we are a national leader in many areas and we have a great model of the industry entrepreneurs research institutions like the national energy lab and the government or all encouraging energy innovation, which then spurs job creation and economic growth, and then i would venture to see the veins americans have a more secure energy and economic future. so thank you for pointing out of these possibilities to less. you talk about arapae as a program that when we should prioritize and we can grow it going forward. to recommend other parts can be used in the model. would you speak to that how this arapae model could be applied in more specific and perhaps more

broad ways not just in the doe but of your agencies, other areas of activities? >> senator, i would be glad to do of that. let me describe what i think are the essentials facets' of arpa-e. one is that arpa was always willing to take risks and in some cases they would fail. arpa didn't devote itself to trying to do something we now do 20% better. the devoted themselves to try to do it three times better, and when they succeeded, there was really an impact all event, so they set high goals, the result is eyes of deciding what they would support and when they could see something wasn't achieving when they were expecting that the money

elsewhere very important to arpa i believe is attracted extremely high quality talent and one of the ways they did that was point of getting a lot of authority to the program managers that oversaw the project said the expected people to only stay for four or five years they have a lot of rotation of people and clearly the best way to freshen the organization is to rotate people through and transfer to others is to rotate people of it and to those of their organizations. then finally i would have to cite that in the case of arpa, the the firm has been i don't like the word generous because i think for reconstruction supporting arpa financially so it has the resources that it needs to support good ideas. so those are the sort of things,

and also arpa is a very problem-solving oriented. they are not organized by discipline as is our university. >> in fact using that he wore to being able to risk failure you provide a lot of space under the decentralized environment and turn people loose with a goal of not increasing the value of the product of the service that's very helpful to hear all that which isn't necessarily the way things are done in the government or the private sector's as you all know under your to which of the private sector you put the teams together to do what arpa-e and darpa still does. in the remaining time i have i want to talk about how we help american households transition to a energy system. there is an actual capital investment can be cost prohibitive we now see some

creative ways in which residential mobile energy systems are least kim and senator whitehouse and alexander have introduced bill the a gram is the renewable access leasing live joined that in the co-sponsor of that legislation which creates a secondary market by having the government ensure the value and cbo scored this at no cost which is always great in this town today. can you speak to model are there other areas you might have identified where we can help those who want to make the right investments could find the cost of the capitol prohibiting were difficult to increase initially? >> the only thing you sort of describe is the other side of ying to encourage clean energy implementation. one side is to encourage the research and development and so on and the other is to help the consumer afford it and that can

certainly be done by civilizing, i don't like the word subsidizing but i will use at, the cost to certain forms of energy, helping people to free the cost of new buildings that are very energy efficient, and then they can pay that back with the savings that they've gained from being more energy efficient. and i think in the grand scheme of things today we have a remarkable opportunity that bringing together the idea of horizontal drilling and hydraulic fracturing to recover shale gas could bypass the time to pursue some of these really promising clean energy opportunities that other wise we didn't have time to pursue different our dependency on oil

and the lack we can do about it. it wasn't years ago we were number one and federal takes systems and

all kind of technologies that have led to all kinds of jobs. we talk about jobs. civilian nuclear reactors wouldn't have happened without the government. gps technology wouldn't have happened without the government. civilian aircraft, the aircraft development in the industry without the government, the internet for goodness sakes created the internet. a long list of government support for all these industries

which showed what the track record has been coming and i don't see any reason why the track record wouldn't continue to be -- is their anything of clean energy and renewable energy that was different by its nature different than all these others? >> i think, senator, the things you site have in common the fact there were high risk undertakings offering a high payoff, and it is not in very good at this particularly attractive to the private investor, and i think energy fits this year will come and energy happens to have an additional characteristic that comes at a low quantities to

well-to-do to nuclear power you would never get there with the private sector it just what happened and if you took what nuclear fusion that is a 60 year project. spec i notice that you mention fusion and that's something i've been interested in, and they always say that nuclear fusion is the energy of the future and always will be. i think that has a tremendous promise and we still continue to invest in that. >> there's been some support for industry for the development of shale fracturing and directional drilling that's been done by the government support for industry as well as 20 years of tax credits for production and subsidies to pay for some of the stuff while not pay for some of

the subsidies that were already paying for this very mature industry. so it was government support that got the gas to go from the, nominating, i don't understand the unwillingness of my colleagues in the of this side to be present and to recognize what role the government has played. dimension energy efficiency

the utility companies go you know what i think i will invest in this retrofit of my customer and lend them the money up front and then it will pay for itself, the

energy savings pays for itself. if we get a national renewable energy standard, and that renewable energy standard with efficiency standards for these utilities you think it would have a good effect if for. >> i do believe energy sufficiency is an important part to this problem. nor do you suggest that. we could even through the use of controllers in their power and the time of day they use energy or just using less energy that has to be a clear positive, and to incur the public to do that i think is an important thing to do. but my bottomline come senator, is spent ten years in the

government, troubled countries and having seen all that i'm a great believer in the private sector doing whatever it can. there is one area where i do think there's an exception to that, and that is when the market itself feels and the energy market has failed to react without government support, the type you describe and theater types described, we will not solve the energy problem in this country. >> thank you triet you've been a successful businessman. >> i think you've been successful but that's not my bar estimate senator murkowski did you have additional questions? >> i do, mr. chairman, but i also know we have a second panel coming up. but i have to have you fill in the blank. why do you think the energy

sector has failed above all fever sectors that are out there what is it about energytht has made it more complicated? >> i think a number of things. one is a high capital cost in the long time facilities remained in existence for 40 or 50 years. but i think more importantly it has been a highly regulated industry. it's controlled, the oil industry is controlled by cartels abroad. the enterprise system is generally not found its way to the energy market. today one of the things you all can do is to help bring the enterprise system into the market. >> thank you mr. chairman. >> mr. augustine, thank you very much for your testimony, and the good work that's gone into these reports. we appreciate very much. >> it's always a pleasure to be before this committee. >> why don't we go to our second panel. we have two witnesses on our second panel.

mr. easton zindler with bloomberg finance. mr. jesse jenkins, the director of energy and climate policy with a breakthrough institute in oakland california, and we are told today is your birthday as well, mr. jenkins. congratulations. it's a big day for both days. >> we have cupcakes in the back. >> that's right. and why don't we have the same procedure here that we did with mr. augustine having each give five or six minutes to summarizing what you think we should know from your testimony we will include your full testimony in the record and then have some questions. did you want to be first? >> good morning german bingaman and centers, of course happy

birthday to mike panelists and senator murkowski it's an honor and a privilege to be here before the committee again. i join the role analyst of bloomberg energy finance division to bloomberg focus on the clean energy sector power grid provides accurate and optional data in sight technology trends and clean energy. my remarks today represent my views alone and not the corporate positions be bloomberg will bloomberg new energy finance in addition they do not represent specific investment advice and shouldn't be construed as such. that's what the lawyers told me to tell you. in june, 2010, my firm -- [laughter] in june, 2010 my firm produced the study and partnership with the nonprofit clean energy group including crossing the valley of death, solutions to the next generation of clean energy to the generation of clean energy project financing gap. the report examined the challenges facing technology, energy technology companies

looking to scale up while driving the cost down. interviews with more than five dozen technologists, entrepreneurs and investors in the clean energy space. other studies in 64 the syria in debt and advanced to the discretion in important ways and most notable has been the energy innovation council work which examines the same dalia def conundrum but with a focus on american competitiveness. my fellow witness jesse jenkins has a brick through institute and others have also provided insights in this area. the clean energy sector seems to have significant growth in recent years. new investment for the industry which totaled $54 billion in 2004 and $189 billion in 2009 or to hundred $63 billion last year. in fact in the fourth quarter of 2011 our firm counted the 1 trillion new dollar invested in the sector. meanwhile we've seen clean energy technologies made important progress down the

respective learning curves. the price of the module at the factory gate has dropped by more than half in the last 16 months. the efficiency of wind turbines contue to improve and prizes for with the dimond batteries use electric vehicles are starting to take down. a substantial part of the progress is the result of innovation that much of it is to simply to the economies of scale to reduce production of the equipment has racked up for the unit costs have come down. inevitably all of this raises the question of whether or not the capitol market are today providing sufficient financing to address the valley of death conundrum. i would argue that they do not in a closer examination of the trend. the vast majority of the new capital entering the cleaners sector in every giving your restricted towards the well-established low risk technologies. just $5.1 billion of two a third to $63 billion that we track last she came in the form of the venture capital with the newest

technology and within their portfolios these are now spending less money on the earliest stage companies making fewer round investments in the company's commesso in short the so called a volley of draft at the technology stage for their early a sahara certainly hasn't been reached so far. similarly the leader stage commercials on the valley of death also remains unsolved. it appears the solution might come from a public stock exchange where new fuel and electric vehicle companies raise billions of the initial public offerings to support their growth but public market fund raising has all but evaporated in recet energy. today for instance there are half a dozen biofuel firms looking it remains to be seen if any of them will be able to flip their shares and i would not last week of course facebook managed to be valued at $100 billion currently valued at $10 billion there seems to be an

appetite for investors for start-ups, maybe not start-ups, but dot com cos. the risk appetite for the companies is different at this particular moment. finally before concluding, i would like to take a moment to address the question where the u.s. stance in comparison to its peers with clean engy deployment a ioumphasize thissuvepm deoyment shod beddressed separately in terms of deployment there's little debate the u.s. trails the nations such as germany and italy and the installation of new power generation. the same goes for the manufacturing of that conventional equipment with the u.s. often lagging behind china and others. on the question of new technology developed the rim remains much to play for however the clean energy marketplace cannot be sustained primarily by subsidies forever and already we are seeing signs of declining support from government around the world. rather the industry must and we think will compete and beat its

rivals on price without government support to refer some technologies in some parts of the world this is already occurring today when that happens far and wide still lies ahead. will the u.s. become to the new critical energy technologies and the associated manufacturing capacity? wealthy you must be a market maker for the technologies ray price tater bunning fi equipment from companies overseas? this remains free much to be seen that there are hopeful signs despite the lack of investment the company is home to world class research institutions and laboratories for venture investing with riyadh for venture capital dollars for clean energy coming from the u.s.. in short in my view no nation may be better positioned to own the long term energy technology future the in the united states. the only question is whether these resources can be coordinated to maximum advantage and that is our public policy must enter the picture. thank you very much for your time and i look forward to your

questions. >> thank you very much mr. jenkins. >> thank you ranking member murkowski and members of the committee i direct the energy plan that pretty much the breakthrough institute an independent public policy think tank based in oakland california it's an honor to appear before you today to discuss to role of government innovation particularly on my dirty and senator murkowski to get advanced energy policy markets in the united states are the key inflection point. in recent years u.s. advanced sectors have grown rapidly adding jobs even through the death of the recession. for the electric vehicles than the biofuels. still a recent cost declines mark important industry maturation and progress. nearly all of this energy sectors currently rely on public policy support to gain and extending foothold in today's was supposed energy markets. that policy support is not opposed to term from boom to bust. supporting the events energy

industries surged $44.3 billion in 2009 but it is poised to decline 75% to 11 billion by 2014. that's according to the analysis of the federal policies supporting that fast energy sectors conducted by diprete through institutes and recently published scholars of the brookings institution and world research institute as beyond the boom and bust putting it on a path of subsidy independence. of the 92 programs we examine a full 70% are now scheduled to expire by 2014. the topic of the sharing is very timely with the evidence energy police's system effectively wiped clean in the coming years might be on the boom and bust co-authors and i recommend smart energy policy reform among the keefer runs. first energy diplomat subsidies and policies should be reformed to better drive and reward innovation and move advanced energy sectors towards subsidy independence as soon as possible. second we should strengthen our

federal energy commercialization institutions and investments. our recommendations on the energy and commercialization find much agreement with recommendations to the american innovation council and with some of the bloomberg finance thinking on public see the that was to help the firm's cross t's a clean energy valley of death. i'm happy to discuss those in greater detail in the q&a but i want to focus here on subsidy reform. first when discussing the role r government in energy innovation it's important to know that energy is a commodity like the bar of steel or copper we don'tare much about the qualities of a kilowatt hour of electricity or a gallon of fuel and itself what we care about or the services we derive from the fuel as such will of pharmaceuticals or electronics command a price premium from customers by offering value added features new energy technologies must compete on price alone right frhe get go. this is an extremely challenging task especially when facing

competition from fossil fuels that in july over a century to mature and devel and i helps explain why the government must play a more pro-active extended role in driving energy innovation them in other sectors. in light of this government was critical 12 fronts. first, policy is key to jump-start market demands from nascent energy technologies that currently cost more than the well entrenched conventional fuels and would thus otherwise not attract the investment. second and equally important government policies must strive study innovation come cost decline and technology improvements that can advance these sectors towards full cost competitiveness with mature fossil fuels. with federal funds ways to contract by colleagues and i believe now was the time to reform energy subsidies to ensure they accomplish both of these objectives driving market demand in the continual innovation. we should not abandon today's energy sectors but neither can we afford to perpetually

subsidized industries without making steady progress on price and performance. beyond boom and bust we of ln ishe criteria for energy subsidy reform to ensur policies reward companies for developing, producing and continuously improving and against energy technologies. in brief, optimize the deployment policies should establish competitive markets among the technologies at similar stages of maturity. they should avoid looking at new technologies to promote diverse energy portfolio. they should provide sufficient business certainty andaxize the mpact of ax payers' dolls by efficiently on looking private investments. of all, market creating diplomatic policies should provide only targeted and temporary support for technologi that are still maturing and improving. they should be explicitly designed to drive and we were a continual cost reductions and performance improvements and steadily reduce subsidies as these technologies improve. eventually the subsidies should

fade away entirely as advanced energy sectors become fully competitive with conventional fuels. the role of government trading markets and innovation for advanced energy technology should post a limited and direct to the robust industries that can stand on their own and thrive without public subsidy as soon as possible. several mechanisms may be designed to meet the criteria and i look forward to discussing those in the till and the questions to follow think you for considering these recommendations. thank you. >> thank you very much. i believe senator murkowski wanted to make a statement. >> if i may mr. chairman, i've got to attend in appropriations markup otherwise i wouldn't be sitting in asking a series of questions i am intrigued by some of your proposals about how we really did get to reform of some of our subsidies and find out what graham king is -- hari the net is. i do have a whole series of

questions that i would like to submit to both of you for the record, and perhaps we would have an opportunity to visit outside of the string to follow-up on some of the proposals. this is an important topic. i think we all recognize that energy, the energy sector is one where things are constantly evolving and how we appropriately integrate the federal government into the incentive process is an important one. thank you mr. chairman. i appreciated. >> thank you. let me go ahead with a couple of questions. first let me ask mr. zindler, one of the policies that some of the government's. the so-called clean energy banks

to help with the deployment of clean energy. i believe the united kingdom and australia in particular have moved ahead with this. can you describe what this phenomena is and what you think the benefits might be if we were to cnside that and if you don't think it makes s here, right ahas well. ..

then they can operate but honestly in making investments in new technologies. as those technologies development, they get a return on that investment that they can reinvest and continue on. the idea that it becomes this it does startt a knot of government money, but it becomes self-sustaining over time. i think one of the potential advantages of this model is that by breaking it out of overnment infrastructure, you can give it more leave a luncheon to operate a more flexible way and make

better financial that they might get from a highly regulated government program. that is the idea, generally speaking. and it is certainly intriguing. i think what is most interesting about it, is the ability to address the demonstration value. that is about 100 to $200 million to build a next-generation biofuels plan or a plant that uses new technology of solar, that kind of capital, generally, banks won't lend to them. they have the money, but they don't want to take the risk. venture capitalists, they are willing to take the rest, but they don't have that much money to make on a bet. it falls into a black hole of sorts. an institution like that, that is willing to provide large amounts of capital at higher risks rate, it offers real potential. >> think you could let me ask

mr. jenkins a question. you list in your testimony here several policies that could be structured to accomplish some of the objectives you identified. one of the policies you mentioned there. you say this is one of the industries that could work with industry and innovation. could you tell us how that will work and what the examples are that we ought to look at? >> thank you, senator. senator franken mentioned the key development of the past, which is microchips. the government was an early market for it the microchips for the space program and missile program. that is effectively driving down the cost of those technologies to the point where they can be widely adopted by the private sector.

reverse auctions have the potential to play similar roles as government procurement in southern california, utilities are using reverse auctions to procure solar panels at record low prices. and to use the reverse mechanism, to create a competitive market so firms can bid for their projects to meet a certain set of demands. a number of megawatts that utilities need to procure from solar projects. the winning bids that have strong penalties for noncompliance, such as a critical aspect, to ensure that people are providing the right things. southern california utilities are preparing seven -- megawatts, it is a model that has been used in india, china, brazil, to varying degrees of success. depending on how well are able

to get these contracts. but it is a model that outlines competitive markets and simply just steadily just on price because it is constantly driving competition and firms have an incentive to reduce cost. it is one of the policies we think we should look closely at. i should also note that some of our republican colleagues have proposed some reverse mechanisms for biofuels. it seems like an idea that has been bouncing around the halls here, as well, and i think we should look closely at it. so we can try both market opportunities, but also continue crus reductions for these technologies. >> thank you, senator franken. >> thank you, mr. chairman. i just want to sk some questions. i spoke a little bit about the government support for industry

for the oil industry. and also the gas industr and also support for the development of shale fracturing and development. can you talk a little bit about that? >> yes, thank you, senator. this is the result of an independent investigation that was conducted to interviewing historians from the gas sector, as well as government researchers to piece together what was the process of development of the key technologies that enable the shale gas revolution that is now sweeping across domestic energy markets of the united states. what we found is that with a number of other technologies, the role of government in supporting innovation in the private sector was critical to the development of a number of the technologies that we needed to unlock previously unrecoverable shale resources. to summarize, that includes the eastern act shales project.

we undertook this in the 1970s by the energy research and development agency, and the bureau of mines. collaboration with the gas research institute, which is a research consortia, they provided rnd oversight, and to the discussion earlier from senator murkowski, it was funded by a user surtax on gas transmission fees. so we set aside a little bit of those funds in the way that mr. augustine mentioned. to drive innovation in that sector, we think it is intriguing. fractional and chilling technologies wer developed by the bureau of mines and the morgantown energy research center, center, which is now the energy technology lab. senator bingaman's home state, they played thank a key role.

that was a key technology that was later applied to understanding the geology of shale deposits and where the pressure is when a girl so the private industry could figure out where to locate the fractures. beyond the initial demonstration of these technologies, there was also a period of time when shale was recoverable, but expensive compared to more conventional extraction technologies. once again, this is second key role that the government has to play. the government instituted the section 29 tax credit for unconventional gases from shale and coal bed methane. that was in place from 2002. they continued to develop and innovate upon those shale extractions. >> they helped develop the market? >> without the tax cut, there would not have been any profitable return. >> so it really -- the government brought an industry,

created the industry that made it possible -- which is in one way, the first valley of death. and then they created the market and subsidize subsidized it, the second valley of death. so when my colleagues on the other side who are not here, when they sing the praises of fracturing and then they demonize government involvement in picking winners and losers, it seems like they don't know the history of this industry. would that be a fair statement? >> that may be the case. i do believe that the history has a clear record here that the government has played a substantial role, and partnering with the private sector we should not diminish the private sector's role in driving innovation. but the risks,h cpital requirements, the time horizons required to drive these new

technologies forward, are really prohibited. this is where the private sector fails. you need the right kind panership between smart government policies, ltd. and a targeted way to address the barriers, and that will unlock the private sector to do what it does best. >> i will take that as a yes answer. mr. ethan zindler, this is what the chairman was asking about. i think you spoke to it, but i just want to specifically talk about the clean energy development administration, or 10 months. you think that is a useful model of getting over the secn valley of death? >> potentially. it certainly has that opportunity. there is a short-circuit in the market, as i try to articulate. i don't know if i did earlier, but basically there is not the right kind of money out there for this kind of task. large-scale demonstration

projects. whether it is cita or some other model, or that you change the tax rules or whatever it is, that is a market disconnect that is looking for some kind of a solution. i think there are a number of interesting ideas out there, and that is certainly one of them. >> thank you. thank you mr. chairman. >> did you have any questions? if not, we can conclude the hearing at this point. >> well, i don't want to click a crimp in your day. >> well, go ahead. that's what my days for it. >> i want to ask about china. the u.s. companies come up with technologies, and then when these companies -- and then when

china insists it is their intellectual property, -- giving of their trade secrets in order to do business, in order to do business in china, i think this violates basic free-trade principles. senator webb has looked at this issue, and i believe this committee ought to explore solutions to this problem. do either of you have any opinions on how agencies can better protect taxpayer-funded technologies? >> i will take a crack at that. that is a tough question, obviously. the u.s. does go china clean energy trade relations is a very interesting juncture.

as he may have seen last week, the department of commerce announced new substantial tariffs on chinese goods into the united states. i will tread carefully in my remarks on this. to some degree, the chinese government's made some of the most important decisions when it came to outside companies competing for contracts there. now, essentially, in the meantime, we saw a real scale of domestic wind turbine manufacturing in china, and really, in particular, a tax over that time. they have become world leaders. on the one hand, if you think about the politics of this, i understand the concerns about creating jobs and protecting intellectual properties.

on the other, i think it is important to note that in part because of that, the cost of solar has never been cheaper than it has been. >> and that actually undercut solyndra? that was part of the cylinder a story. >> part of the issue for solyndra is that solynda was an interesting example. they got caught up in a large degree of what was going on at that moment. it has scaled faster, prices have come down faster. >> so they were undercut -- solyndra was undercut by the fact that the chinese spend so much on promoting their own solar industry to make it so much cheaper than they were undercut, and their long-term viability became longer-term? >> well, that's. >> at a higher quality but more expensive, right?

>> basically, the future arrived faster than what they had anticipated. frankly, it wasn't just the chinese. we have seen it come faster and in taiwan and other places as well. they got ahead of themselves and that has driven up prices sharply. >> right. mr. jenkins? >> just one thing to add. i think the current markets for today for advanced energy technologies are substantial. but they are almost entirely government created markets. you know, they are created by subsidies in europe, china, the united states or elsewhere. i think we have to keep an eye on the prize, which is the development of cost competitive technologies. they can scale a 5 trillion-dollar global energy market without subsidies. the game, i think, in the long term, is you can develop the technologies that are cost competitive enough to export to

global markets. ninety plus% is coming out from outside of the emergence of economies. those countries may be focusing on driving competition. to enhance u.s. competition and reduce the cost of taxpayer investments now is that the costs have to be continually driven down, and birds have to be supported to innovate. if we do that right, we drive the right carcinoma over the medium. we can succeed. we can see firms take root that can deploy the technologies without subsidy and without the need for ongoing public support. >> okay. this is my last question and comments. what we are basically doing is fighting for the future. >> that is right. >> because what we are saying is

that we know when these solar and other renewables, other clean technologies become price effective, and they will and they can, and they have to -- that there is going to be an enormous world market, and that if we don't do this now, we are not going to be part of it. >> i think that is exactly correct. again, we can look at the history of shale gas as a key example. we are not the only country with large shale gas resources. china has more than we do, south africa and many countries in europe. but it was the united states who developed shale technologies first. it was because of the government partnership with that. we were able to develop those

technologies. now, the united states enjoys a massive source of new energies. we have created tens of thousands of jobs in that sector. if you look 2005 or 2006, that was a tiny contributor to it our energy system. you cross that tipping point, and you have a revolution in our american markets. and we're exploiting those technologies abroad, the expertise to china and other countries to help them develop resources. that is a parable for what we can and should do with other technologies. energy demand in the united states is back. we can't rest on those laurels. we need to did continue to develop clean technologies and those same types of policies we need to use in the future. >> i don't think we can end on a better now. thank you, mr. chairman. >> thank you both very much. it is very useful testimony. we appreciate it. that will conclude our hearing. can't

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> at the daily white house briefing, the deputy assistant for climate change talked about the president's efforts to extend renewable energy tax credits. president obama will be traveling to iowa on thursday to promote the issue. this part of today's briefing is 15 minutes. >> good afternoon, ladies and gentlemen. welcome to the white house for

the daily briefing. as you know, on thursday, president obama will try traveled to iowa, where he will urge congress to support american jobs and manufacturing and the clean energy sector by passing legislation to extend the production tax credit and expand the tax credit. today i am joined by heather zichal, who just included a meeting with when developers and supply-chain manufacturers to discuss the value of the tax credits to a range of industries, and communities come and how we want to work together to ensure that they are past. we are also joined by one of those manufacturers, terry. terry royer is headquartered in illinois, a western suburb of chicago. he started with 11 employees in 2001. assembling and testing gearboxes, which is a key

component inside a wind turbo in. today, he operates to factories and many employees. as you know, as with all the items on the to-do list, this one has enjoyed bipartisan support in the past, at best we hope that it will garner support going forward. with our guests, i would like to turn over it over to heather, who will have some remarks and she will turn it over to terry. i will call on you for any questions you have, the two of them on this particular issue. you can stay for afterward questions on other issues. once they leave, i will be here to take those questions. with that, i give you ethan zindler i give you heather

zichal. there are a number of key provisions that help create jobs and strengthen the economy. there is a key energy provision on that list. first, the production tax credit, which expires at the end of this year. it provides a credit per kilowatt hour for utility when producers. second, the 48-c credit provides a 30% credit to manufacturers who invest in capital equipment to make clean energy projects in the united states. what is true of all the proposals as jay said, if they have been supported by both democrats and republicans. the president will be in newton, iowa, to visit ppi composites, where they employed 700 workers. it demonstrates how important the crowd unsent tax credit is to the industry, but looking forward to that continued success. when it comes to the ptc, it is

supported by the chamber of commerce, the national governments association, as well as republicans in both the house and senate. just look last fall, there was a bill introduced to extend the ptc. it has about 100 cosponsors, 21 of which were republicans. part of why you are seeing real bipartisanship and support is because we have made significant progress over the last few years in building renewable energy in this country. it just doesn't make sense to undo all of that progress, especially because american jobs would be lost. keep in mind where we stand today. thanks in part to investments in clean energy, the largest in history, the u.s. is nearly doubled renewable energy from wind, solar, and geothermal since 2008. generation from winter winds has increased 27% in last year

alone, continuing a trend of rapid growth. moreover, the administration, nation of tax credits and appointment and manufacturing has helped increase the domestic content of clean energy technologies in recent years. it has now reached 60%, which is up from 25% in 2005. that means more american jobs. in fact, today, the wind industry supports tens of thousands of jobs all across the country. while these are encouraging trends, it also means that thousands of jobs, including those in the supply-chain, are at risk if congress fails to renew the credit. when the ptc expires, turbines slow, and job losses occur. as jay mentioned, we just wrapped up a meeting with secretary salazar and a number of individuals representing the wind industry. we met with developers and construction and manufacturers. i think some of the key takeaways from that meeting i

would like to share with you. wind, overall, has made success in reliability and six efficiency. without an extension of the tax credit, we could see job losses up to 37,000. some of the direct quotes without a tran-eights industry, they are about to fall off a cliff. because of uncertainty, we heard stories about companies refocusing efforts outside of the united states, taking jobs and investment dollars with them. another direct quote, we don't foresee any direct projects for 2013 in the united states. all of our construction phase will be laid off or moved to canada without the ptc. i think these } just how important this is. again, with a history of bipartisanship, we are hopeful that we can work with congress into this meet as quickly as possible. i would like to introduce kerry.

>> thank you, heather. it's a pleasure to be here today. it is a pleasure for me to be one of the many manufacturing companies in the united states became about over the last five years because of a bipartisan support for the production tax credit. as a result of that stable tax policy, the industry has had the ability to scale up and to grow and create jobs. for myself, as a 28 your manufacturing year manufacturing leader, there is no more passion than i have been to create jobs in the united states, and that is what has happened. as heather mentioned, we went from over 20% of a wind turbine production being made in the u.s. to more than 65% being produced here today. these are real manufacturing jobs, jobs like my family had in southeast iowa many years ago. as a long-time manufacturing prison, the stories about job creation and continuing the work that we started five years ago.

four years ago, when the industry started to see this boom in the stable tax policy, more than 70% of the capacity that has happened in the last four years in the installed base in the united states. you can see quickly how much the industry has grown, and has created more than 75,000 direct jobs and indirect jobs as a result of this growth over the last four years. for a company like mine, again, i will reiterate. i am speaking for more than 450 companies. we started with 11 employees 10 years ago and had more than 380 in place today. but i will tell you what the uncertainty, we have already created by not extending this tax credit, my company will be impacted and many of the 480 companies will be impacted. not only those companies, but all those companies -- the diner down the street. the supply-chain that supplies my factory. they will be impacted as well. for me and all of us, we need to

consider this what we have for this legislation and move it forward. this has created real jobs and can continue to do so into the future. thank you. >> with that, we will take your questions for kerry and heather. who would like to start? >> for all of you, can you talk about what you are doing to get congressional support for this and what sort of reaction you're getting from them? >> thank you for your question. as you have heard from this administration from the very beginning day, since we were in office, investing in clean energy is a priority for the president. as i mentioned at the outset, the good thing about this proposal is it has a long history of bipartisan support. it also has the support of others. we are working to expand a list of support. we are working hand-in-hand with

those in industry that are able to communicate the potential job loss stories and translate to numbers that are looking at this question of an extension to translate what that means in terms of jobs in their communities and in their home districts. we are working every day with our legislative team to continue the dialogue end to this as quickly as possible. >> thank you for answering my question. do you have a timeframe for how long you need to cut the credit? will that be two years or four years or six years before the industry can be self sustained? >> one of the things we have is starting and stopping the production tax credit. if you look over the last four years as why we have had it, the industry has been able to scale up, and the cost is determined

and has decreased over the last four years. the industry is being able to stand on its own. the question is how much longer. we believe that long-term interest in on its own. in fact, today without the tax credit, we are competitive with everything with the exception of natural gas. we know that that is a commodity that can change. one of the things i like to point out when people talk about competition to the other forms of energy, they are all important. we need all forms of energy in our portfolio for producing energy. let me make one thing clear. wind is not a commodity. the price of wind 10 years from now will not cost any more than it does today. unlike natural gas, today it is inexpensive, but what will it be tomorrow? clean energy has to be part of our solution long-term. >> the question is, how much longer? one thing we can do is scale the

industry of this year -- or the last four years, and we can't pull the rug out. that's what we're getting ready to do. i think there is a time horizon. it after that, it is good. if you look at the trajectory we have scaled up in the costs that we have brought down to the supply-chain and the efficiency of the germans, i think we are striking distance. it is hard to predict. we have this, and we kill all this momentum if we stop this. >> i have a question for kerry. kerry, they say that they can say the tax credits are in place soon is now, they won't be able to make those assessments. is that something that is, and i guess, and was saying about

moving into canada. you and your company -- without these credits, you're not making anything next year or are you moving to canada? >> my company is an example of many of the component suppliers to the turbine industry. you are right. it is very time sensitive. that's that is why last fall we really started talking about the extent of the credit now. it does have an 18 month cycle time when you go to that development of the property to get permitting and ordering the equipment, to those owners that come to my factory for the gearbox. it does have a long cycle. we do expect impact next year without immediate action on this topic. >> will it take for your company to be ex- patriot? >> again, all the companies in this industry will be impacted and will be making business adjustments accordingly.

>> sometimes in regards to job creation and loss, what gives you confidence that it will be 30,000 thousand jobs lost? >> the number that we heard was directly from the industry in the conversations today. as tran-twos said, their jobs in this sector come in their tens of thousands of jobs and wind energy. it is not just about the manufactures. it is also about the supply-chain and the additional jobs that are created there. because of this uncertainty, businesses are forced to make very difficult decisions. one woman in our meeting told us about the first layout that she has ever had to make in the 30 year history of the company. i think the point here is that we know that these are jobs. real jobs in communities across

the country. we need to continue to support this industry because it is at a pivotal point in time. >> to answer your question further, there is a study that was put out by the american wind energy association that speaks specifically to those statistics. the 30,000 -- 37,000 jobs lost. it is important to look at the study and see what the growth trajectory continues to be if we continue on this path with this industry and what it can mean for further job growth. i think it is also important to talk about that. >> do you know what numbers you have? >> i can't quote that because i may not state it right. but it is in the study and is available. >> okay. thank you both very much for coming. i will continue with the briefing. we appreciate it. >> here is what is coming up on c-span 2. the senate commerce committee considers legislation to protect

online privacy. vice president joe biden talks about the economy during a trip to new hampshire. later, a senate hearing on government support for alternative energy research. tomorrow, it the senate homeland security and government affairs committee, mark sullivan, talks about a group of secret service agents accused of hiring prostitutes in colombia. eight of them have lost their jobs. that hearing gets underway at 7:30 p.m. eastern with live coverage on c-span, c-span radio, and c-span.org. >> right now i want to take a look around you and think not about where everyone has been, but where they are going. the guy in front of you could win an academy award someday. the girl behind you could be a future president of the united states, or even better than that, the mayor of new york city.

[laughter] >> the guy sitting to your right could be a future nobel laureate. maybe not the ones you're right, but certainly the one to let. >> memorial day weekend, watch commencement speeches. politicians and business leaders share their thoughts with the graduating class of 2012. saturday through tuesday at noon and 10:00 p.m. eastern. >> the obama administration is pushing congress to pass legislation protecting privacy online. the senate committee looked into the issue, and they heard testimony from jon leibowitz. senator jay rockefeller shares this 90 minute hearing. >> good morning and afternoon,

and i apologize for being five minutes late. every day, tens of millions of americans go online to search for information. they want to shop and pay their bills, or they are accessing social networks. to state the yuppie scum of the internet has transformed every aspect of our lives. what is less obvious is the level of information that is collected about us each time we visit a website or watch a video or send an e-mail or make a purchase. consumers have had no choice. people trust that it is safe, secure and will be used appropriately. but the incentive to misuse consumer information is very

great. a consumer's personal information is the currency, in fact, of the web. the value of this dollar has created untold riches for those who have successfully harnessed it. this is not necessarily bad, as it enables enormous amount of content to be accessed, and allows companies to access services for free. but unfettered collection of consumers online data poses a very significant risk. right now, consumers have little or no choice in managing how their online information is collected, and how it is used. whatever limited choices they do have are often too difficult to use, and model by privacy policies that are complicated. again, just like your classic health insurance comparison. tiny writing.

protecting privacy is critical for companies. i understand that. people need to trust the websites they are visiting. but online companies are conflicted. they need to protect consumers information, but they also need to monetize their uses and the user's data. i am afraid that in the hyper competitive online marketplace, the need to monetize consumer's data and profits will win out probably almost every time over privacy concerns. the administration and the federal trade commission have both recently issued reports on the need for industry to do more and to protect consumer data and give consumers control over how their personal information is used. they have worked to bring about consensus on voluntary action. this is something we will discuss further at another

hearing. the administrations and industries actions are to be commended to this respect. but i have learned over many years, that self-regulation is inherently one-sided. in many industries and many times and many years. it is inherently one-sided. the consumers rights always seem to lose out to the industry's needs. i believe consumers need strong, legal protections. they need simple and easy to understand rules about how, what, and when their information can be collected and used. they need easy to understand privacy policies, rather than incomprehensible documents. we should take up strong privacy legislation this year. i do not believe that significant consensus exists yet on what that legislation should look like, but i will continue to work with my colleagues on

legislation. as chairman of this committee, i will continue to work with the administration and the ftc, both represented here. to push the industry to develop and adhere to strong privacy protections, i will continue to hold oversight hearings to make sure that the trust of americans has been placed in these companies and is being respected. i call now on the ranking member, my next argument. >> thank you very much, mr. chairman, and thinking untrimmed thank you for holding a hearing on this very important topic. this still remains skeptical of the need for congress to pass legislation or for the ftc to have increased authority to enforce new privacy rules, regulations or principles on the private sector. it seems to me that no one

understands what consumers expectations are when it comes to their online privacy. consumer expectations of privacy can vary based on the particular application they are using, or by the general privacy preference of any given individual consumer. it is important that companies have maximum flexibility to work with their customers to ensure their customers needs and preferences are met commended the application of service functions as consumers expect. as the recent ftc report points out, companies are already currently competing on privacy, and are promoting services is having over privacy protections than what is being offered by marketplace rivals, for instance. this is a sign of a healthy, functioning, competitive market. this type of competition is something we should be encouraging. overly restrictive privacy rules and regulations handed down from washington may threaten this innovation by shifting the incentives to compliance over

competition. i don't think anyone desires such a result, which is why i caution my colleagues in the administration to proceed with caution. proponents of federal privacy legislation and granting ftc authority, really should seek to understand the threats. facebook is free, google is free, there are thousands of mobile device applications that are free. it is often said that information is the currency of the internet. a detailed, cost-benefit analysis of a do not check regulation or other new privacy rules would better inform our discussion, but to my knowledge one has not been completed. we need to understand the many services there are any minimal cost. less information is likely to

result in less information and firewalls. i think it is rational for us to have companies provide reasonable policies. section five of the ftc grant grant the commission broad authority to investigate deceptive acts or practices, and the commission has highlighted a number of these enforcement actions in the beginning of its recently released report. it has acted. just yesterday, it was reported that the ftc on my space reached a privacy settlement. they are subjected to the next 20 years of privacy assessments.

google is subjected to outside audits for two decades. i have not yet heard a persuasive argument as to why the ftc needs greater authority. lastly, i find it interesting that the commission seems very concerned about consumer trust in the private sector. consumer trust is very, very important. but there is no one for whom it is very important in the company that is trying to maintain customers. i can trust in the marketplace is something that the marketplace tends to sort out pretty well. companies in all sectors of the economy have a powerful interest in building a strong, trusting relationship with their customers. consumers don't trust company a., they lead to company b. the internet has made leaving one company or service provider very easy. it can often be done at little or no cost. it is one major company likes to say, the internet is where competition is one click away. while this is an important topic and worthy of our consideration,

i do think it is premature to begin discussing specific legislative fixes or increased ftc authority when we don't fully know whether or not and to what extent the problem exists. i look forward to hearing from our witnesses today and i thank them for coming. and i thank you, mr. chairman. >> thank you very much, senator. i call now on the chairman of chairman of the subcommittee that works best. that is senator john kerry. >> thank you very much, mr. chairman. i appreciate this hearing. and i think this hearing can help, as it prior hearing has. i think the record is clear, senator toomey, as i say, a lot of the questions you have raised have been addressed in those hearings, and i think that has been a powerful showing with respect to both the ability to have a privacy standard, as well as the need for the privacy standard. without affecting those

applications of the free access or other things you're talking about. the record will reflect that. i'm delighted that we have the chair of the federal trade commission and one of the commissioners from the commission here with us today. obviously, i am delighted to welcome my own brother carrying the burden of privilege, and i'm glad that he's here today, representing the commerce department. he has been working under two different secretaries now as have many of us on the committee. i know that the council with the chair, they are going to set out today for the final findings of both the commerce department and federal trade commission. with respect to this question. it is not unimportant, i think, that both the commerce department and the federal trade commission, frankly, together,

with most of the privacy experts in the country, have all come to the conclusion that we need to have a privacy law with respect to providing protection to individuals within commerce. i think that the distinction, senator toomey, is the privacy experts have come to that conclusion. honestly, some of the companies have not, and don't share it, and the reason for that is very simple. the information economy, the more that the companies know about you, the more valuable you are. whether you have consented to that or not. they are collecting more than simply the information that you type in. a lot of americans aren't necessarily aware of that. these companies watch your behavior. they measure your behavior. how long you linger on a site. you are specific searches.

a lot of people think they are just going in and searching privately. somebody's watching you. somebody is tracking you. you wouldn't feel particularly good if you have a private investigator trailing you through the mall, looking at every single receipt that you get and everything that you peruse and look at and ask for. that is essentially what is happening here. you don't have privacy. they analyze and enhance that data, and then they reach a conclusion about you. using that information, these data scientists are creating enormous wealth, often producing innovative products, and services. there is nothing to stop them from doing the creation of those products and services. with the consent of people who want to be part of that war without necessarily the detail of those who do not. what is the harm? senator toomey asked that question today.

what is the harm of what can happen to you without your knowledge, consent or active participation, and where there are no limits to what can be collected and where you have no right to access what has been collected about you. it seems to me the more conservative position here is frankly to protect the individual in america, not to protect the right of people to invade your space without your knowing it. if it is not properly secured, that information can actually harm you. number one, through identity theft. even if it is properly secured, it can be used to categorize you inaccurately or in ways that you don't wish to be categorized. exposing you to either reputational harm or to unwanted targeting. for example, by analyzing your buying habits from a retailer may know that you are pregnant before you even tell anyone. they begin to send you advertising based on medical

status. or on your ethnicity or on your age and corresponding behavior can be used to target them in different ways than other populations may be targeted, and maybe you don't want to be targeted. were analyzed in a particular way. or as in the case of google wifi collection, your private communications, including sensitive conversations, can be easily captured, exposing aspects of your life to companies that are simply nobody's business. when information collected about you is used to make your buying experience better or serve you better, you will find a majority of the people have no problem consenting to that kind of use. but the collector ought to have the right to make that judgment. the value proposition with respect to the consumer. most americans don't have any

awareness that there is no general law of privacy and commerce in the u.s. today covering these transactions. when it is brought to their attention, they say they want money. our largest trading partners have such laws, built on european standards. i believe it is important for us to set our own standards. something that could in fact be more flexible, and be more stakeholder driven. less punitive than what exists in europe today. but just as capable of delivering strong privacy protections. in keeping with the spirit of the united states normally doesn't, you know, wait for someone else to set the standard and barwick, we ought to be sending our own standard. the final agency reports that have been issued recently agreed that we ought to lay out a blueprint of privacy principles for legislation. senator john mccain and i have agreed on one approach.

and i introduced that approach with him more than a year ago. it reflects each of the principles that are being put forward in the analysis today, as well as the concept of the safe harbor for a flexible application for the code of conduct for different kinds of businesses. i think all of us know that consumers are very smart. they will consent most of the time to something that will enhance their buying. but the most important thing is to make sure that the individual consumer has the right to make that decision. can we get there? i think it is up to the committee and members on both sides. the bipartisan proposal that senator mccain and i offered up, as i said, it is not the only way to approach this. we are ready to negotiate, and i think we ought to compromise in this effort to reach a fair standard. but we need to get onto that discussion, because we really can't afford another year of delay, which may come in the

end, wind up putting america into a default position on this. which would be far less flexible, thoughtful and sensitive to our own business interests. and i think that americans ought to know that congress believes that in the digital age, every individual american has a right to an expectation of privacy. i hope we can find that weight forward, mr. chairman. >> thank you very much, senator kerry. i want to turn out now to our witnesses and we will have ample time for questioning. to start, my preference of the order would be to start with the honorable jon leibowitz, who is chairman of the federal trade commission. then the honorable men who is general counsel who is related to senator kerry, and come back

to you as a cleanup. is that all right? >> let's start with chairman liebowitz. >> thank you chairman rockefeller. i appreciate the opportunity to present the commission on consumer privacy. alongside our newest commissioner, maureen ohlhausen, as well as kerry cameron. the commission commends the privacy efforts by the department of commerce, as well as the bipartisan leadership that your committee has shown on consumer privacy issues. most of my remarks today will concern privacy policy and especially do not track. the ftc is primarily an enforcement agency and commissioner maureen ohlhausen will discover efforts. mr. chairman, imagine a cash strapped college student working part-time to keep up with tuition. to make ends meet, she applies online for loan and a loan and

attains it at a favorable rate. she also goes online because her father suffers from depression comes assurance research symptoms and potential treatments. soon after, in the mail, she receives another loan offer. this time from a payday lender at a much higher rates. in the evening, she spends time relaxing by catching up with friends on a social network. while online, she notices she is receiving ads for medication for stress and depression, as well as more loan offers. could the lender have sold the information about her need for money to payday lenders who are now offering her loans? could the fact that she researched the depression be sold to or shared with potential employers or insurers? can these exchanges of information occurred without the consumer's consent or even awareness? the answer to all of these questions is yes. of course. the college student benefits from quick responses to loan applications. free access to health information, and an easy way to

keep up with her friends and family. but as senator kerry noted, the vast majority of americans simply have no knowledge that their purchasing financial help and other personal information may be sold to data brokers, generators, lenders, insurance companies, potential employers and just about anybody else. most consumers are entirely unaware of the vast amounts of data about them being collected, sold and used both online and off-line. now, we at the commission applauded -- we applaud the advertising ecosystem that is provided for free content and services that people can enjoy. as the nation's privacy protection agency, we are also concerned that some practices by some companies may adversely affect americans and their critical right to privacy. at the ftc, we have been

thinking about this issue for more than a decade. we recently released her final privacy report its outsourced what we in the public and private sectors, should do to make sure that the right to privacy remains robust for all americans. the short answer is that consumers should have more control. we lay out three principles for companies to follow when handling personal data. first, this is guidance -- it is not a regulation -- first, incorporate privacy protections into products as they are developed. that is, privacy by design. second, offer consumers choice and control over how their data is collected and used, and third, provide more transparency. that is better explanations to consumers about how their data is handled by companies. the final report also recommends that congress consider enacting general privacy legislation, as

well as specific statutes addressing data security and data brokers. data brokers often hold a wealth of information about consumers but remain utterly invisible to them. in addition, our report calls for a do not track mechanism. one is easy untrimmed that is easy to use. it is worth emphasizing here that your computer is your property. people shouldn't be putting things in your computer without your consent. in the last year, industry has made strides towards finalizing a meaningful do not track system. at this point, we are no longer asking whether do not track will exist, but only how it will be implemented. we are optimistic that with the encouragement of this committee and you, mr. chairman, a do not track mechanism that allows consumers to control the

collection of their browsing information with limited exceptions, for example, to prevent fraud, will be in place by the end of the year. going back to the discussion between senator toomey and senator kerry, do not track will be run by industry and not the government. of course, vigorous enforcement remains a top priority for agency, as the commissioner maureen ohlhausen will describe in detail. just this week, we announced a case against my space. my space exposed information with advertisers after promising that it would not. the proposed settlement order prohibits them from making any privacy misrepresentations and requires them to create a privacy program and undergo third-party audits. simply put, stance has been brought to the proposition that we could hold companies accountable for their privacy

policies. we look forward to working with the congress and administration going forward. thank you. .. in developing the privacy blueprint, so i well, being able to join chairman leibovitz and the commissioner at the witness

table today. the explosion in the collection and storage and analysis of data and digital one formation offers new frontiers of knowledge and innovation and growth but senator to me asked the question what is the market failure here we're at a tipping point that presents a dual market failure earn trust as responsible stewards of consumers' personal information exceeds the ability of even most sophisticated consumers to understand and control what information is collected about them. this asymmetry allows out fliers and out false that are not good stewards of information to take advantage of consumers trust and lack of information.

that is why a great many companies, consumer groups, the ftc and the administration support baseline consumer privacy legislation. when it comes to sustaining trusten the digital economy, business and consumer and government interests converge. the administration's privacy blueprint articulates a consumer privacy bill of rights, individual countries, transparency, respect for context, accuracy come security, access and accuracy, security and focused collection and accountability and calls for congress to give the broad principles the force of law. we recommend to mechanisms to apply these principles. the first is getting the ftc the direct authority to enforce the individual provisions bill of rights has enacted rather than

relying entirely on the section 5 of four ready as currently framed. the second is authorizing the ftc grant safe harbors from enforcement for codes of conduct that to address how best to follow the privacy bill of rights in specific context. the national to the conditions information administration of the department of commerce is carrying out the administration blueprint by initiating stakeholder driven process these to develop codes of conduct. the ntia is reviewing recommendations on the first topic and on the process including the comment, chairman rockefeller, thank you. ntia should be selecting a topic convening the first meetings very soon. in addition i've asked a working group to put the administration

privacy blueprint into legislative language. we are drafting and we stand ready to work with this committee and other members of congress to put baseline privacy legislation into the law. what we do here in america is paramount to u.s. consumers and companies, but we cannot ignore the global reach of the internet. europe is in the process of honing its approach to data privacy. other countries around the world understand the need for the rules of the road and are looking for models. we have the clear opportunity as president obama said in his preface to the privacy blueprint to offer the world a dynamic model of how to provide strong privacy protection and the aníbal ongoing innovation and

new information technologies. baseline privacy legislation will ground our system firmly so america can be an example for the world and pave the way for privacy standards that are interoperable and not the globe. leading by example will encourage other countries to build multi stakeholder process he's, flexibility and accountability into their commercial data privacy networks. this model will promote free flow of information across the national borders which helped the u.s. companies and u.s. consumers alike. mr. chairman, when i speak to international audiences, i . to the deeply held privacy values of americans that are embedded in our constitution and in the privacy of the law that a couple statutory protection in areas like health records with strong enforcement by the ftc by the

state attorneys general and i get a lot of things cues from companies from defending the system. but they want and need more, but the clear message to the world that the united states cares about privacy and will protect the privacy of consumers of all sectors. mr. chairman i think you again for the opportunity to be here today to provide our view, and i welcome the committee questions. >> thank you, very much, sir. commissioner. >> chairman rockefeller, ranking member and members of the committee, i am pleased to join german leibowitz who is presenting the testimony and the council that part of commerce. privacy is an important topic for american consumers and i commend you for holding this hearing. let me say at the outset that my

comment and the views expressed this statement are my own and do not necessarily represent the views of any other commissioner. as you know, my tenure as an ftc commissioner began on april 4th so while privacy is an issue in which i commend its interest and commitment my views on privacy from the perspective of the commissioner are under a month old. why a letter of the march 2012 privacy report in for some initial thoughts wife was not at the commission during its development and release. i'm just now in the process of slowly educating myself on the specifics of the report and thinking through the implications of its recommendations so i'm not yet ready to commit myself to the specific conditions on all aspects raised in the report. i am however happy to share some of my preliminary views on the best ways to safeguard the consumer privacy as well as my thoughts about where the commission should deploy its resources. to start, i firmly believe consumers should have the tools to protect the personal

information through transparency and choices. as i said during my confirmation hearing i support the strong record of enforcement in the area of privacy. the commission's written testimony highlights many of our enforcement efforts relating to privacy data security. the ftc has brought more than 100 sq cases and more than 30 data security cases including cases against choice point cbs and twittered. we charged companies failing to live up to the privacy promises as highly publicized cases against companies such as google and facebook that protect more than 1 billion users worldwide. as a commissioner will urge the continuation of the strong enforcement records. as i also sit in my confirmation hearing i support and active data security legislation, the legislation to empower the ftc to promulgate regulations for the protection of personal data from all christa access has to the current bill spearman rockefeller and chairman prior. as is apparent i am concerned about protecting the children's

privacy in their rapid technological and dances. i support the commission's multi approach in this area, enforcement, regulation, and education. since the enactment of the childrens' on-line privacy protection act of 1998 the commission has brought in for some actions in the ongoing proceeding to amend the rules i will carefully consider the record as to formulate my views. turning to the commission's press report i would like to commend some important aspects. it calls for a policy by design by which companies build privacy protections and to their everyday business practices. this minimizes the risk of breaches concern from the outset and should be considered as best practice accompanies has to develop new products and services. appropriate use of the notice and press concept is also quarter sound policy and a separate the recognition that there's no single best way to offer a notice in place in all circumstances i also agree

reducing burdens on businesses by identifying circumstances which traces not necessary because the collection of the data is consistent with the context of the transaction with the relationship of the consumer. as of old enough to the congress has given the commission's enforcement and policy tools to provide a strong framework with which we can protect american consumers. some of my colleagues to support additional privacy legislation the would go beyond section 5. the contours of such legislation are not yet defined but my colleagues gave general guidance in the privacy report. the report was clear the recommended legislation would reach practices that wouldn't be challenged under the current interpretation of section 5 zipf. this could be the opportunity to develop my own opinion on what else in addition to section five may be beneficial to consumers such as with traditional privacy the decision is needed. i will consult with stuff and my fellow commissioners as of as

many other stakeholders to gather their views on what problems and solutions they see in the area of consumer privacy. some of the issues i will examine our harms are occurring now in the section 5 and how should harm be measured? as my colleague noted in his defense to the privacy report, the commissioner has in the past specifically at least, chris action dissention it will not enforce section 5 against the alleged intentional harm and the ftc's statement suggests the the focus should be on monetary oslo was health and safety rather than on the more subjective types of harm to it although the commission's pervvijze report didn't reject the fundamental insight of the harm based approach appears to have an expansion of the definition of harm to include the potential harm for the fear of being monitored or other intangible privacy interest and as an initial matter i have reservations about such an expansion. even absent the deception, financial and medical the information is protected of the

current law which likely reflects most consumers' expectations and other areas have a for consumers appear to have diverse views about sharing information, the citizen burton to proceed carefully to avoid infringing on many consumer preferences. if a consumer is provided with a clear notice prior to the collection of information, there's likely no basis for concluding a consumer cannot make an informed choice. i would also like to find out more about the progress of the self regulatory and technology based efforts underway to provide consumers a greater transparency and choice about the collection and use of their data. finally, new research also has an effect on competition by favoring in trench entities that already have consumer information is a new entrance needed to obtain such information, or encouraging industry consolidation for purposes of sharing data. as the competition agency, the ftc should be sensitive to the concerns as well. clearly the technology sector is developing in a lightning speed and we now face issues on her of even a few years ago.

i wish to proceed cautiously in the need for any additional general privacy legislation, however. i have concerns about the of devotee of legislation our regulatory efforts to keep up with the innovations of advancing the internet without also imposing and intended chilling effect on many of the enormous benefits consumers have gained from these offenses or without unduly curtailing the development and the success of the internet economy. thank you for allowing me to participate in today's hearing. the committee has strong shom leadership in the consumer privacy and i look forward to working with you to ensure that american consumers privacy is protected. thank you para >> thank you very much, commissioner. i will start with a question. i will make this one chairman leibowitz correct the digital and advertising alliance has spent a lot of time developing its own consumer guidelines, and they've pledged to follow these guidelines and honor their customers' privacy concerns and

that's a good thing. but we all know, at least i know that in spite of their good intentions you see this so many times what is the coal mined, natural gas, whether it's the telephone company, whatever, whatever. sometimes industry's self-regulatory efforts do not end up protecting consumers. in my experience corporations are unlikely to regulate themselves out of profits. let me give you an example. back in the 1990's consumers are getting bogus charges crammed onto their telephone bills and 1i suppose could say the consumer should understand everything on their telephone bills once they've read it in writing if they can see the writing they are so informed and the front responsibilities have been replete.

the big telephone carriers can to congress said that time back in the 90's and told us they would take care of this problem. they told us congress didn't have to pass the law and they would eliminate cramming on its own. as you know, german leibowitz, the telephone industry efforts to stop or a huge failure but my question to you is why might the self-regulatory effort have a better chance of succeeding? >> let me start by saying you know we brought a major case today. as a contempt order for a company that, again, to a company that had violated action against a company that we believed violated the order and when i heard the senator say a 20 year order and i sometimes wonder when i first got to the commission when we have 20-year-old orders, we have 20-years-old orders because the action concerning teen years after we put this company in order we think was the

$50 million of bogus charges on their bills so we want to work with you in this committee in a bipartisan way to stop cramming. with respect to the digital of advertising alliance, i think they've made meaningful progress, and i do think do not track will be available for consumers and optimistic by the end of the year when we were in a riding with your support and with your efforts i would say this though, we have to make sure do not track is with a few enumerated exceptions may be in place and all the efforts is about do not collect. it can't be i can collect consumers information but i want to target them advertising but i will monetize and sell it. >> you cut it off at the starting point. >> i cut it off at the starting point? did you want to -- >> no, forget it. >> sorry.

anyway, so i think we have to work on that. i will say this going back to the points that several of you have made i was on the west coast trip to the area meeting with all of these technology companies and the wonderful, the competition issues, this is just a few weeks ago and all of them to be held on privacy. a lot of them to be helpful on do not track. the one, we are not debating anymore whether there will be a do not track initiative. the industry alliance has said they would support the form the only question is what would be ended and when it would be affected but one of the things i heard is that companies are sometimes concerned that they want to do the right thing they don't want to be at a competitive disadvantage and that is why your efforts are very helpful here. >> my time is not up. so, you go back to the d.a. and they say they are going to do this on their own, but my

understanding is that the effort leaves a rather large the poll as you have observed at this point and i would like to know about that. >> i think it depends on what the exceptions might be to allow the consumers to opt out from third-party tracking. if it is just from the anti-fraud purposes or what is known as the frequency capping so people don't get the same that is sent to them over and over and over, that might be legitimate. if it applies to things like marketing research, you know, it depends on what is defined because you certainly don't want a loophole that swallows up the commitment and that is why i think this year and next week will be a very important. >> yes, we are going to have that hearing. thank you. >> thank you very much mr. tryon. just to be very clear i think i know how you will answer this, but section 5 of the act does

offer voice and in cover the commission to make in the first action against the company that violates the privacy policy. do any of you believe that you lack sufficient enforcement authority in that regard any kind of legislative change in that respect? >> i would say it is a terrific tool for us but it doesn't do everything. we have a number of cases as the commissioner hasn't mentioned but companies that haven't -- that violated the commitment to consumers probably more than 40 including those against facebook and google. there are lots of gaps, for example we did of a report on kids privacy applications that go to kids through either the android google system or the apple store so they are great for kids, but only about a quarter of them have privacy

policies. we can't mandate a privacy policy, but i think everyone understands that privacy policies would be a useful thing to have. we've gone back and we talked to adel and google and they want to ensure there are pie into the privacy policies so parents with their giving to their children when they are putting kids and politicians of their iphone or smart phone, but part of the reason i think the majority of the commission is a part of a general privacy legislation, and you have to get in right of course, is because would fill the gaps and part of it is because i think a lot of businesses want more certainty that you can get when you are not taking a case by case approach which is what we have to do when we do case by case and we do policy. we don't really do regulation except when it comes to kids privacy and that's because the congress gave the specific authority. >> that is one of the things i want to examine as i get more subtle than the commission. if there are things that the ftc current authority cannot reach.

but initially if there is a deceptive statements and privacy policy, that is a very straightforward case and it's brought over to many of them. >> that was my question with respect to the violation of the stated policy nobody feels as though there is any ambiguity or insufficient authority. >> none. >> okay. i think everybody here technologies but just to be clear, do you all agree that there are many companies operating on the internet that actively compete on the basis of the privacy policies that the offer that is one of the features that they bring attention to? >> that is a good point and we started to see that and of course one side of the agency's consumer and other is competition so we would like to see that. i believe when the google changed its privacy policy about the beginning of march, microsoft had full-page ads in "the new york times" saying if

you want more privacy protection, use the missile yes we are starting to see that. >> i believe that companies are starting to compete on those issues and starting to do that at some be based on the consumer interest. spec that is the nature of the beast it seems to me. if there is a feature that is important to consumers business pursuing their own self-interest one fact try to attract consumers by providing that feature and they will compete on that basis. i find your discussion about do not track free interesting. as i and and this is an industry effort that isn't mandated by legislation, not mandated by regulation, it is a voluntary approach would your commanding and the industry apparently sees as its own interest to pursue. so what do you think of this

dynamic, where why the industry presumably with input from consumers and sort of discovers a process that works for both. stegano do not track, i think a majority of the commission is very supportive of this process. they are making meaningful progress. now i think part of that is companies want to do the right thing and part of it may be the chairman's legislation is out there and i think a lot of people -- it probably has a fair amount of support, but we see progress and we are hopeful that one way or another we get to the finish line by the end of the year. >> again, some demands on the do not track effort, but we do commend their progress to estimate senator come if there is on the privacy offerings we would like to see more competition. part of the reason is to use it privacy principles including a

transparency and control is to create more of an active conversation between businesses and consumers, so the consumers can make choices understand the benefits. the problem with existing law today, the reason that we believe that additional ftc authority is required is that it hangs on privacy policies, and there's research out there that indicates you have to spend 200 us 50 hours a year to read every single privacy policy for the average consumer. that's just not something that people are able to do. so, you know, people don't really have a choice about the content of what is in a privacy policy. and as chairman leibowitz mentioned, there are companies out there that don't have privacy policies and the

existing authority doesn't reach of those so with the ftc found above the mobile applications is consistent with a broad survey at the top 50 applications. only a third of them had privacy policies. so how do you deal with people that don't have privacy policies? you can't hold the promise that you can hold them to under section 5. estimate i would want to point out very briefly in closing there's the privacy area of course that consumers want these privacy features that you're advocating. they are not available, so the premises there's this huge untapped potential marketplace that nobody has been smart enough to figure out because it follows -- is this true there's a huge incentive for a company to send the offer those policies, advertise extensively and then to call kind of market share away from the not so clever competitors that haven't figured out that it's important to consumers.

we ought to proceed cautiously when that is an underlying assumption tricks committee would call on senator kerry that that is an astounding assertion, astounding degree of faith in the knowledge and times. senator kerry? >> thank you mr. chairman. commissioner, ebay, hewlett-packard and microsoft, intel, for a rise in, other industry leaders support the legislation that senator mccain and i have introduced. obviously these are all companies get important consumers etc.. you said there might be an unintended chilling effect. they don't see an unintended chilling effect. they are signed and they think this is important. i do not have seized in the american consumer if you're given choices that they can make

those traces, and what is the unintended chilling effect of the american consumer? >> thank you, senator. you raised an important issue and that is one of the things i want to explore as i said one london to my tenure and i want to find out more putting it there is the possibility that companies that are already entrenched it have the data that they need to create their products may not have the same concern as a new company and they have a new product that we haven't even thought of it may use consumer data in a different way to estimate the they are all going to be held in the same standard. the issue is the individual american consumer privacy, and they are all going to be held to the same standard. i mean, you have set forth the idea that conceivably might think you have an economic or physical harm standard that you are applying.

the problem is what happens if there is no risk of economic or physical harm to be proven that something very personal is exposed, a health issue that they might have cancer. with their sexuality is exposed? what if they might be having an affair or something and that's exposed? that's damage in its evaluation of their privacy. how do you wind up with a set of notions that it's only a physical or economic arm? >> senator, what i was addressing is how the ftc has already said it would apply its own fairness and what its told congress in the past with the limits were to refer the ftc to recommend a new legislation that would take into account additional harm is something that i think needs careful consideration. spec that's what we are trying to do with and getting this careful consideration for two years now.

it seems to me we need to kind of breakthrough a little bit. let me try to get further into that. because some of the arguments from senator to me is this notion that this is going to interfere with the freedom to create new applications and so on and so forth. i don't see that. consumers' choosing how their information is going to be managed is not going to affect what people are going to offer. they're going to offer protections. but let me ask specifically the other witnesses or other privacy principals other than just this idea transparency and choice there are other principles at stake like data retention limits for instance or purpose

specifications. can you talk about the breadth of interest that go beyond the transparency choice? >> thank you, senator kerry. as i said before in my remarks to senator to me we can't depend just on the notice of choice as part of the problem with the existing system. the principles that we have outlined to transparency, respect for contact security incorporate some of the additional principals that you talked about. we have articulated the principal of focus collection which incorporates the use limitations and data

minimization. >> can you break it down in a practical way? >> the principle recognizes and the reasons articulate it would be different than simply data minimization in the age of the data there is a great deal of data collection that has public benefits. public health to research, and often in unforeseen connections a mcdata so we don't want to discourage that but what we do want to discourage consistent with the principal of privacy by design is that people make conscious considered decisions about what data the need to collect and they need to retain.

>> if i could follow up in that it in your preachers of the all-important principles one of them privacy by design and another is transparency because that can do the code of conduct one of the benefits of having stakeholders involved in developing the code of conduct we found and discussed this in a previous hearing we found privacy policies in the mobile is based are 102? nobody reads that except the staff we ask to read it and the other thing and this is part of the reason the businesses are so supportive of things like do not track and as a general privacy legislation is it sort of create a virtuous cycle. if consumers have more trust in the internet, if they have more control the flight they have more trust in the internet they do more engaging and commerce and sliding -- i think part of

the reason the support general privacy legislation is because of the right thing to do and part of it becomes a virtuous cycle. as my commissioner ohlhausen has mentioned you have to watch out for barriers center because of the competition site it's the big guys doing things to make it tougher for the innovators. but we have not seen that problem on the privacy issues this far and the only other point i just want to mention is we try not to take speculative harm into account when we bring the cases. we do take and these are bipartisan cases are occasional harm into account from time to time so for example the buzz word that we have come asserted, tried to jump start its first social network by taking confidential gif email information which they said would remain private and making it public, and by doing that, sir information like the fact someone might be seeing a psychiatrist and communicating

became known to other users so that kind of harm where it's not speculative is one we didn't take into account in the statute. >> i appreciate it. let me just say that it's important -- if you have a choice and transparency there's no customer would be better than your today but people can still take your information and use it any way they wish and stored indefinitely and you wouldn't have any control over a third party purchase or sale. what is the standard by which that information is to be kept? what happens after it's been there for a long period of time? is a lot of things where there's an expectation that has to be protected and people have to have a greater knowledge about just in the trace of what they need to do. >> senator klobuchar.

>> thank you mr. chairman for holding this hearing and thanks to the witnesses. i want to speak to you german leibowitz on craming which i know you've been doing and i've been focusing on for awhile with ever attorney general in minnesota, and we have made some strides with some of the major telephone companies as you know agreeing for landlines to police this in a better way, and i know that i saw yesterday you announced your seeking a content ruling against its third-party bill and companies, so i want to thank you for that even though it isn't on the topic is kind of. but then move on to some other things. today i introduced along with senator blumenthal and a few other senators and we have companion house budget legislation on the password privacy, and it's called the password protection act and this of course cannot of a number of us that got contacted by people that had been asked for

passports and there's been some reports on that and we worked actually with facebook and google and twitter and a lot of groups and they're seems to be widespread support for putting some kind of a rule in place to make clear the data that people in tend to have to be private is private, which reformer justice brandeis used all the right to be left alone and the we have with a new technology it's difficult for the law to keep up and i was just wondering what the ftc and human the department of commerce are doing with regard to these issues and if you have had things come up with password issues and the like if you want to start, senator. >> well, we have some concern and we've expressed some concern about the practice of employers asking for facebook passwords and we have communicated that to facebook crudités facebook said

it sounds like they are working with you. they also noted that this may not be a part of their terms of service so it is something we are concerned about and it may be something by the way that isn't within our own fear deceptive acts or authority it's an interesting question we were discussing today before i came up here but we want to work with you going forward on your legislation. >> very good. >> thank you, senator klobuchar. our proposal was focused on the relationship between consumers and the companies they deal with. but they say is the use of that information by and for years is reflective of where we are in the world of information today

that there's so much information out there about people and the ability to collect that information has gotten so extensive that it is possible to learn things about people that constitute information even that sensitive information hasn't been put out there by itself. but i mean to take german leibowitz example of somebody doing a search on health information that we protect health information under hippa to the health care for fitters have to protect that. you can determine, you can find out health information. the ability to the aggregate

information creates new risks of harm that haven't existed. >> the same with the information that might be in your password and religious, things you wouldn't ask about in an interview, so we are hoping working with the business community there will be some support here as well as with the rules of the game are so we've been working on that. my last question is just about industry self regulation and it's important to recognize the practice steps the industry has undertaken to set up and follow best practices comes of regulatory agreements we just need to get the word out and make sure they are easy for consumers to use the 12. hauer your agencies working to get the word out about consumers' right to privacy and how they can make privacy decisions that are right for them basically how to educate the public about the tools they're not there now in addition to what we may be working on but what's out there now and how are you working with

the self regulation entities to make sure the policies are consumer friendly? >> our report kentucky to protecting consumer privacy most of the members of the committee are familiar with it was drafted after working with stakeholders we held numerous workshops. we put out a draft report which accompanies generally like but we wanted this and we got more than 460 comments from industry representatives, consumer groups and various of the people that had something to say and the comments were very detailed and very helpful. i would say the pace of regulated and has been uneven and i think that is part of -- if even if you ask the best companies with the best practices about that they would say that is part of the reason they are interested in things like do not track standards and privacy legislation so that they will be migrating towards a more even playing field and also one

where consumers have more trust in the internet, which again, it contributes to sort of a virtuous cycle for trust, more commerce online. >> is a going out of time and i will give any other answers and run to and put a question on cloud computing, something i'd like to ask about something to free much. >> thank you, senator pryor to the estimates before mr. truman. let me start with you if i may mr. ohlhausen triet i'm curious about your impression of the average interim user understanding and realization on the extent his or her information is being collected and what is being used and how it might affect our lives and

curious about your sense of the average internet user, how much it gets of all of this. >> thank you, senator pryor. that is one of the issues i would like to find out more about as i talked to staff and stakeholders. i do believe that there are consumer expectations that financial information will be secured, the medical the commission will be secure. but as you get away from some of those areas, i do think in, example first party markets in the ftc and cable was advertising and also in this privacy report have noted that consumers do expect the website they are dealing with a using information to market to them subsequently. as you move away from that paradigm those are good questions i would like to look

at further. estimate let me ask you kind of a three part question from your standpoint, are there first are there adequate tools available and second are the consumers sufficiently aware of those tools and a third come are the exercising their choice and controls? >> that's a great series of questions. i would say for some things they're adequate tools available, so flexible if you want to go on line of thinking google and possibly microsoft offer browser's you can sort of go in, and the dose of it as a sort of interesting way for consumers if they want to and if they are aware to use a tool that and how was them. the best companies are better

about in powering consumers giving them more tools and information but in some instances consumers just on not aware and this goes back to center to the's plant. we all would like to see more competitions, more privacy. but when you have privacy policies that are on the mobile space cardoza enzus clicks away to read through it's just hard to have competition transparency in the understanding what the tools might be in your options are, so a little so say some companies give better protections into space and a son of you are concerned about and others don't so we encourage companies again we don't regulate this is not a regulation to give more approaches because we all know kids are sometimes technical savvy but judgment poor. >> i was going to ask devotee

team's next if we could do to that commitment of this -- i know that we don't require privacy policies right now, but should we require privacy policies when it comes to kids and teens? >> riding that is something we would like to work on because i think if you can encourage or require companies again we were under a specific privacy protection act there are specific obligations as the committee knows we are in the process of updating the obligations. i think it is a really good thing to have, so the teams understand some of the consequences. all too often it is after -- the recognize the importance of privacy which both consumers to recognize if you look at the polling data, but all too often that he is recognized the importance of privacy after the center post of something or read something that caused some harm.

i want to work with you on that issue going forward. >> the would be great as we were, i would love to get your thoughts on this and if so how operators are misusing personal information. i know you have some data but a lot of anecdotal evidence on that read what we get to mr. kherbi if i can because we are almost out of time here and i know a few moments ago when senator klobuchar was arriving at it looked like you have an answer for her in a document in your hand you were maybe clinton answers to why will give you the chance to do that. but first, let me ask about state attorneys general. is it the administration's for the the part one of commerce's view that should have the authority to seek civil penalties for violation of voluntary privacy commitments were codes of conduct?

>> senator, we believe that the state attorneys general's along with the ftc should be the prime enforcement vehicle and it's important that that enforcement have some weight. we would certainly be glad as we move forward to work on legislative language to work with you on how best to do that. >> and did you want to -- >> sure. senator klobuchar had asked the question about building consumer awareness and the document getting out to chairman leibowitz held up his agency report, and the appendix in the white house blueprint sets out the consumer privacy bill of rights and in doing that we try

to put it in plain and simple language and a stand-alone document that is something that consumers can use to understand what to expect from businesses as a tool to build consumer awareness, and that's something the we will work to implement to the sequel to process these that we've now embarked on, and i think it's important to say that those process these are not just self regulation. we want to involve all stakeholders to involve consumer groups so that that's regulation that's looking out for the interest of everybody and not just the affected business community. >> it is interesting to me that in some of the comments the were

made people talk about breaking the internet as if this onslaught, and was also interesting to me that some didn't talk at all about consumers. they talked abut the right of an internet to people to develop in any way, shape or form that would be and it didn't get around talking about the effect on consumers, so i want to get at this with you and also with all three of you actually breaking the internet policy if we were to pass some legislation we've been working senator kerry said that is a specific, working for about ten years on the commerce committee with the vigor that we had recently, but this was an ongoing process. so, they already protect people's phone conversation, protect people's television

habits, privacy laws protect people's medical records, their financial data, and clearly our privacy is protected in other technologies where there is sensitive information. how does this protecting the american people in the ways in which they had every right to be protected and expected urethral the to be protected do we get into breaking the internet? it is unclear to me that in any way by any of these types of things do we attack the rights and privacy of the internet in their own business? >> i am pleased to answer that question, mr. chairman, because preserving the dynamism, the innovation, the economic growth to the internet is a powerful

instrument that has been absolutely a guiding promise of the work that we've done and that's why the model could be adopted doesn't follow the traditional. that simply doesn't work in the internet environment, doesn't operate the internet speed. that's why we have incorporated in the multistate cultural building on top of a baseline fluorite's consumers can expect across-the-board regardless of the sector to develop a set of codes of conduct using the same structures of the multi stakeholder policy development standards, consensus that has been so successful in the internet space.

consortium, the ieee. these are those of the internet that have operated not as the product of any one government, but as a public-private partnership involving business, involving civil society. it's worked tremendously successfully. it can work successfully in this space. >> if i can just follow up mr. chairman. i think the general counsel is exactly right privacy and generation go hand in hand and you can protect consumers and promote innovation and with respect to do not track cannot prove that is the business community supports the and is supportive of moving forward with a do not track option for consumers. stomach was it not come and i need to call on you, commissioner, was it also not true that a number of companies got very enthusiastic about

doing the do not track on their own right after the report came out? i would say like microsoft and apple there was a lot of support for it and they're continues to be. again they were very supportive early on and they've made progress since. >> that's not a question to ask. they came out in support of right after the reports came out some some of them also came out -- more after the report that is correct. >> commissioner? >> i figured we were. >> so, i think that's a very important issue and one that some, in terms of raised concerns about and i think in the debate you get a wide array of views and people express concerns about that and have great concerns about consumer privacy and the ftc generally

tried to strike the balance of meeting the consumer expectations, so if the consumers have protections and expect the protections about the financial information in the medical the permission to concede some a good job in bringing the cases that advance the expectation for the cases often. i think for me that is one of the most important things i need to look at is if it is going to be the consumer expectations in the consumer preferences because consumers do also enjoy using a lot of the benefits and services that the internet offers come as if we have a solution that consumers ultimately in that unhappy with because they've lost some of these services, the convenience is the internet has provided them i'm not sure we your striking things in the right balance, but i think the important thing is to strike the right balance for the benefit of consumers.

>> thank you. senator udall. specs before mr. chairman. sorry i wasn't year earlier. what we have so many -- >> we have things going on. >> i understand. and i hope -- i hope you'll forgive me, but incredibly and precious objects the chairman always focuses i just hear a lot of discussion in the mexico about this whole privacy issue and i pulled his time going over in the ground that you already hit by just a couple of questions. chairman leibowitz, the ftc's recently sold privacy cases are companies used by millions of americans could you explain how the settlement will benefit consumer online privacy and how they have the solid encouraged to other companies to change or improve their privacy policies? >> you're talking about the settlements that say google or

facebook we are found in violation of law is essentially those companies made commitments about keeping information private that we believe they got keep or didn't honor their commitments as we brought cases against them and have a settlement. in the settlements they are required to be monitored, the have to engage in privacy by design. most importantly if you combine the facebook matters the protect more than a billion consumers worldwide and if they want to change the privacy settings we have to get consumers and often going forward. and then of course when you are under order we unlike most attorneys general, and you missed the discussion but i know that you work who find authority we really do not have the

funding authority but if you were under what we can find you for a violation we hope we don't seek a second violation here. >> and you know in your testimony that the european union is moving forward with data privacy regulations is there a concern that europe moves forward with rules by fall off the u.s. does nothing they will essentially become the global norm that u.s. companies follow? pure islamic it is a concern that we have heard from the company's i sit in my oral remarks that i defend the american system of privacy and the commitment that we have in our law to not let other countries set a decent standard.

there are points in common between what the european commission has proposed there are also concerns that gets into prescribing technology and other kind of prescriptions that could operate as the barriers to inhibit the free flow of information across the international borders. it's important to move forward here. we are here because the mission as the committee knows well is to promote the commerce of the united states we wouldn't permit it is the legislation if it didn't provoke the foreign and domestic commerce of the united states. the fact that, you know, we are sitting here.

german leibowitz proposals of the legislation reflects the convergence of economic business and consumer interest in this area. it's important to consumers and business and it's important to global commerce tariffs too thank you, commissioner. you have any thoughts on those? >> the international element of privacy regulation is very important, but i need to educate myself a little bit further before it can offer anything very useful at this point. >> thank you, sharon rockefeller. really appreciate this the mix before, the honorable tom udall from the state of texas. >> i would just like to close with a couple. we talk about this digital advertisin