A new federal oversight agency is also required to integrate research by private business, universities and international, the non-profit research council said in a study sponsored by the U.S. Environmental Protection Agency.

Nanotechnology involves designing and manufacturing materials on the scale of one-billionth of a meter. It is used in areas ranging from stain-resistant clothing and cosmetics to food additives.

The sector's product sales were about $225 billion in 2009 and it is expected to expand rapidly in the next decade, said the study by the research council, a unit of the National Academy of Sciences.

"Despite the promise of nanotechnology, without strategic research into emergent risks associated with it -- and a clear understanding of how to manage and avoid potential risks -- the future of safe and sustainable nanotechnology-based materials, products, and processes is uncertain," said the study by a committee of 19 scientists.

There is insufficient understanding about the environmental, health and safety effects of engineered nanotechnology materials (ENMs). Little progress has been made on the health effects of ENMs that have been swallowed, inhaled or absorbed by humans, it said.

There also has been little research on potential damage from more-complex ENMs that are expected to come into the market in the next decade.

CHALLENGING MATERIALS

The complexity of ENMs and their coatings make them challenging to assess as risks. For example, a nanomaterial can change its surface properties depending on where it is, such as in lung fluid or air, the study said.

The federal government has set aside $123.5 million in its 2012 budget for ENM safety research and that level should remain stable for about five years, the report said.

Public, private and international groups should designate another $5 million a year for collecting and disseminating information on ENM, and $10 million for instrumentation, it said.

Investment in developing and providing benchmark nanomaterials should be from $3 million to $5 million a year. Identifying nanomaterials sources and developing research networks each need $2 million a year.

All the new spending should be kept in place for five years, the report recommended.

The panel called for replacing the National Nanotechnology Initiative, which coordinates federal agencies' investments in sector research and development, with a body that has the authority to direct federal safety research.

The new body also should ensure that federal research is meshed with that from private business, universities and international organizations, it said.

(Reporting By Ian Simpson)

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