At a time when congressional budget cutters are taking aim at Energy Department programs, one far-­reaching experimental division is holding its own — the Advanced Research Projects Agency-Energy, the department’s dream factory, where the goal is to revolutionize the energy world.

ARPA-E provides seed money for emerging, cutting-edge energy technologies that Energy Department officials believe could create whole new industries. The program is modeled on the military’s Defense Advanced Research Projects Agency, known as DARPA. That program, created as the Eisenhower administration’s response to the launch of sputnik at the height of the Cold War, was instrumental in the early development of the Internet, GPS and stealth capabilities for military aircraft.

During the energy agency’s first two years of operation it has provided $365.7 million for more than 120 projects aimed at transforming the way the world produces, stores, transports and uses energy. In the process, ARPA-E has helped the companies secure 17 patents.

“We’re looking for quantum leaps in technology,” said Arun Majumdar, director of ARPA-E. “Not incremental stuff, but high-risk, quantum leaps that could change the world.”

The agency is kick-starting projects that translate new science into technology, as well as research aimed at advancing current technologies into new directions.

“Imagine a world where you will be driving an electric vehicle which will have a longer range — that lets you go 300 or 400 miles on a single charge,” Majumdar said. “And the car would be cheaper than a gasoline car. That battery does not exist right now. No one in the world has that battery. We are going after that battery.”

ARPA-E is also funding efforts to use microbes to convert electricity into oil. “People thought this was impossible to do, that this was science fiction,” he said. “But right now, there are at least three labs that are producing oil. Of course they’re not producing millions of barrels of oil, but small flasks. You’ve got to start somewhere.”

Thanks to the energy agency, scientists are working on new methods of storing carbon dioxide emissions from coal-fired power plants by converting the gas into pellets of dry ice. They’re also developing low-cost technologies for cooling buildings, as well as looking for technological breakthroughs in solar power, advanced biofuels, thermal storage and electric grid controls.

New Industries and New Jobs

Like DARPA’s success with the Internet, the energy agency’s most successful technologies could create thousands of jobs and boost the U.S. economy, according to Majumdar, who previously served as associate energy and environment director at Lawrence Berkeley National Laboratory and as an engineering professor at the University of California at Berkeley.

“We’re talking about whole new industries,” Majumdar said. “If you can make oil from electricity at a large scale — that industry does not even exist today. If it did, it would be employing hundreds of thousands of people.”

According to the energy agency’s supporters, the federal government needs to provide money for early technology development because private companies won’t risk their money on unproven but potentially transformational technologies. “Funding that kind of project is too risky for the private sector,” he said. “The private sector is looking for revenue five years from now. This is not a five-year ball game.”

Majumdar noted that DARPA supported a series of incremental computer technology improvements before the Internet became a commercial success. “Do you know how long the Internet took to get to scale?” he asked. “The research and development started in 1968. It took 20 years for it to really scale up, for the public to start using it,” he said. “Now look at it.”

Congress created ARPA-E at the recommendation of a high-level National Academies of Sciences panel report. On the team that drafted that study was Energy Secretary Steven Chu, who then was director of the Lawrence Berkeley National Laboratory and Majumdar’s boss. ARPA-E was authorized under a 2007 law signed by President George W. Bush. But the Bush White House dismissed the new agency as “duplicative or counterproductive” and never sought full funding.

ARPA-E blossomed under the Obama administration when $400 million in stimulus funds was dedicated to the fledgling agency. The White House wants $550 million for ARPA-E for fiscal 2012.

During the spring congressional budget debates, House Republicans sought a more modest $50 million, then settled on $180 million under pressure from key lawmakers and business leaders. The Senate version of spending legislation budgets $250 million for the agency.

ARPA-E provides new technology firms with small grants — an average of $3 million for each new project. That’s a far cry from the big-ticket loans the Energy Department has handed out under other programs, including the $500 million guarantee that went to the now-bankrupt Solyndra solar company and the $8.3 billion loan guarantee for Southern Company to build nuclear power plants.

Majumdar said the ARPA-E grants are large enough to help technology pioneers translate ideas into marketable projects. “Some of them will actually fail. We are tolerant of that,” he said. “But some of them may actually work out.”

Once those projects begin to show promise, the research companies are better able to obtain private funding. In August, Vice President Joe Biden announced that five of the companies funded through ARPA-E grants have attracted more than $100 million in private capital.

Friends in High Places

ARPA-E has important supporters in Congress, including Tennessee’s Lamar Alexander, ranking Republican on the Senate Appropriations Subcommittee on Energy and Water; New Mexico Democrat Jeff Bingaman, chairman of the Senate Energy and Natural Resources Committee; and Alaska’s Lisa Murkowski, ranking Republican on Bingaman’s panel.

Top American business leaders are also rallying behind the energy agency. In September, a group of executives, including Microsoft founder Bill Gates and GE CEO Jeff Immelt, released a report detailing the case for government spending on cutting-edge energy research. The group, organized by the Bipartisan Policy Center, recommended that Congress hike funding for ARPA-E and called on the Energy Department to focus more resources on innovative energy technologies.

ARPA-E has the support of a wide variety of public policy groups. A 2010 report by the American Enterprise Institute, the Brookings Institution and the Breakthrough Institute recommended that Congress allot $1.5 billion for the agency. In April, the conservative Heritage Foundation proposed $300 million in funding for the program, although the group suggested eliminating many of DOE’s other programs.

Others are less sanguine. A “green scissors” report released in August by an alliance of conservative and progressive groups targeted ARPA-E and several other Energy Department programs for elimination. The report argues that the technology agency supports projects that “show little promise for reducing pollution, but could potentially be significant profit centers for private firms if any investors were convinced of their merits.” The report was authored by two liberal groups — Friends of the Earth and Public Citizen — and two conservative groups — the Heartland Institute and Taxpayers for Common Sense.

But ARPA-E supporters say the agency is focused on research that will advance the nation beyond today’s energy debates. “This is basic research,” agency director Majumdar said. “We’re not trying to understand dark matter in space. We’re translating the research into technology that is usable potentially by people in the future. This is very focused toward solving our energy problems.”