Good morning. And thank you, Dan, for recalling old times, and also welcoming me at this meeting today.
I appreciate all of you being here. For those of you who do things for national defense already, thank you for what you do for us; much appreciated.
I'm going to be brief, for no other reason than the president mentioned earlier, for whom I used to work -- and Dan also will be shortly. That's why you all are here. I'm not fooling myself. But it's fortunate timing, from my point of view, because I did want to set forth the basis of the logic that brings me here and that brings Secretary Chu and Secretary of Defense Panetta and all of us -- Dan, myself, all of us in the room who work for them -- together in the mission of technology applied to energy.
Let me explain what that logic -- really this iron logic is. First step is we at Defense must innovate to protect the country. Our technology, second only to the quality of the people we have in uniform, is what makes our military the best in the world, and it has long been thus. It needs to remain so. We need to do that faster and better, by the way. And that's a story for another day, another speech.
Sometimes the innovation we do for defense is single-purpose; for example, stealth technology application for the national defense. But most times, more often, it, as the phrase goes, spins off into wider use, wider than purely defense -- GPS, the Internet itself; in an earlier era, jet engines, communication satellites and so forth. You all know those examples.
And we regard that as an important function of defense expenditure in our country. And again, it has long been so. In fact, since we make up about half of discretionary spending in the federal government, it really is a national duty to be good custodians of the funds we administer for national defense innovation for the larger national duty.
So we feel that national duty. At the same time, of course, any expenditure we do make needs to contribute directly to national defense.
How are we doing in that regard? You all know that we are very pinched in our budget situation today. It may not seem that way to you. We just requested $525 billion for fiscal `13 for the base budget for defense, and $88.5 for overseas contingency operations for mostly Afghanistan.
But we were required by the Budget Control Act to remove from our plans for the next 10 years half a trillion dollars worth of activity. That's what you've been hearing about when you hear about cuts in defense -- $487 billion that we will not have that we had planned to have. That's why you see us making the largest adjustment we've had to make in over a decade in the defense budget.
And I won't go into whining about that further with you, but only to make the point that in all of the discussions we have with President Obama about this and all the discussions that Secretary Panetta and Chairman Dempsey and all of us in the department, all the debate, discussion, analysis we went through over the months preceding the submission of this budget, never once was the commitment to the technology base of defense in question. In fact, the president made it pretty clear to us that we weren't to be shortsighted in that regard. We weren't to lose the seed corn that would constitute the defense of tomorrow because of the budget decisions today.
Therefore, we -- if you want to know what the math is, we do about $70 billion worth of R&D per year, DOD, roundabouts. Of that, about 12 billion (dollars) you would say is science and technology-related. The rest of it is the development of specific systems, new systems or operational systems, $ 12 billion (dollars) or so.
DARPA, our DARPA, our E-ARPA, accounts for about $3 billion of that $12 billion. And we do about $2 billion additionally of basic research; so a substantial investment in fundamental technology. I should add to that, we provide finances to industry when they spend money on R&D on their own behalf and on their own agenda, totaling about $4 billion.
And then our defense industry partners spend, in pursuit of further profits, a considerable amount on contract R&D out of their own profits. We don't have a good handle on that number, but it's something in the billions of dollars also.
And so if you accumulate all this, it's really a substantial wave of effort and investment in the national innovative effort.
Now, from this you can deduce the three ways that we think it makes sense for us to align ourselves with the research and development agenda of the Department of Energy.
First, we do R&D jointly. We don't try to compete with the Department of Energy, either in scale or quality. We can't in energy. But we have some energyneeds that we are willing to invest in, because our needs are, in some places, different and less cost-sensitive than would be in general economies.
For example, we are very cost-sensitive when it comes to high-energy batteries because we don't like to burden a trooper with a lot of weight to power all the equipment that a soldier now carries around the battlefield. We're willing to pay more for that than you would ever be willing to pay for a battery that illuminates your flashlight.
Secondly -- Dan mentioned this already -- we have a huge installed base of vehicles, buildings. We have a lot of real estate around the world. That is, we have a basis of a test bed foundation, and we try to make that available to the Department of Energy in its programs as well. Go on to our installation and try that out. We're willing to try that out on some of our vehicles, jet engines, whatever, in the hope that fuel types -- that we will find them useful. We know you're looking in that field as well. You provide the know-how. You provide the real research content. We in the Department of Defense won't try to compete with you there, but we will provide an installation on which you can try it out.
And lastly, in some cases we're prepared to be an early adopter of technology that it's not reasonable to expect anyone else to be. That's so not because we're wasteful of taxpayers' money or insensitive to technical risk, but for two reasons. The first one I mentioned already. There are some areas in which we are cost-insensitive in a way that the rest of the economy won't and can't be, and therefore we're prepared to invest and adopt before the rest of the economy. And sometimes, not always, sometimes that leads to a more economical version of the same product down the line as technology improves that can be accommodated by the rest of the economy. But in the meantime, we benefit in our own terms.
And secondly, we, unlike so many in the economy, take the long view. We're going to be around for a long time. National defense is going to be around for a long time. And so we're prepared to make investments that are sure to pay off, but won't pay off for 10 years, whereas those out there in the economy with a high discount rate can't afford to place those kinds of bets as easily. We're prepared to do that. It's in the national interest, it's in the taxpayers' interest and in the interest of national defense. We can justify it. We're prepared to do it.
So in those three ways, we -- it makes sense and it's logical for us to combine our efforts with DOE. Now, to do that, we have to discipline ourselves about project selection. And I'll just say a word about that. We need quality. For us, everything we do has to be defensible as a contributor to national defense.
And for that reason, I've been talking to Steve Chu and Dan about collaborating project selection as well, to basically peer-review with your scientists is a good thing. It's a good thing to have peer review department to department as well. And I think that's an area where we could use the expertise in energy as we sift through our own possibilities.
And I'll give you a few -- excuse me -- examples in closing. Dan has touched on a few of them. The first, I'll take you to field operational energy. By the way, I see Sharon Burke down here, who runs that business for us in the Department of Defense.
Operational energy is the energy that fuels our operations, obviously; about $15 billion just in fuel itself. And just a few examples -- I came back from -- Friday from Afghanistan. I can tell you, it's cold as the dickens in Ghazni. And if you're in a building, as most of our tactical operations centers still are, they were thrown up willy nilly. They've got plywood walls. And so we're running the generators overtime to run the heaters to keep the buildings warm; obviously not a smart thing to do, particularly when you're 10 years into it, as we are in that war.
I'll never forget -- I guess it was three years ago. It was summer when the Marines first arrived in RC Southwest, Regional Command Southwest in Afghanistan, going to see the Marines. And, of course, it's hot as all get-out in Helmand River Valley in the summer; 100 degrees in the shade on a good day. And the Marines had brought their surface tents to sleep in, and they were endeavoring to air-condition them. And these are tents that are circular, and I would say maybe 20 yards in diameter. And so what they do is pitch one of these tents. And, of course, sand would be blowing up under the skirts, and they would ring the tent with air conditioners.
Now, OK, it's a war. It's only money. But it's not only money, because somebody has to bring that fuel in to run those generators, to run those air conditioners. So there's more to it than that. So in dealing with forward operating bases and expeditionary forces and dealing with ground vehicles and dealing with air vehicles, jet engines and so forth, these are areas in which we are naturally driven to innovate for operational needs. It makes sense for us to partner with the Department of Energy.
Facilities, last. Dan mentioned this. We're the largest real property owner and operator in the world. And Dan mentioned the number 300,000 buildings, 500 installations just in the United States alone. And so we are very interested in energy-efficient buildings.
And because we're in this game for a long time, we're prepared to make investments that will not pay off in the short term, but in the longer term. And in so doing, we may be early adopters of something that later in time will pay off in a shorter time scale and will be attractive to others. But in the meantime, it's a good thing for us.
We're concerned about the security of our installations. That leads us to things like microgrids, local storage. And, of course, we are -- as citizens of the world as well as economizers, we're interested in renewables.
So both in the operational energy area and in the installation area, you can see that our mission leads us to look at technologies that have some aligned with DOD's. So we're all in with the Department of Energy. It makes sense. It's good for the taxpayer. We're all in, despite the budget cuts on defense. We have to be. It's good, prudent stewardship.
And we're all in with ARPA-E also. We like ARPAs. We have one too. And we like it very much and we've benefited from it very much. Therefore, we understand why the Department of Energy has one. And we've been working real closely with ARPA-E. They're great collaborators. And we look forward to working with them well into the future, because I think, just like DARPA's been around for 50 years, I dare say ARPA-E will be around for decades as well.
So with that, let me thank you all for being here. Thank you for giving the Department of Defense an opportunity to join in this very knowledgeable audience about energy.