The United States needs to reduce dependence on petroleum for a host of economic, energy, and environmental security reasons. Even the Pentagon is concerned about the military’s own vulnerability to volatile global oil prices and supply disruptions. The President is seeking to accelerate the military’s shift to advanced biofuels, and the fledgling domestic advanced biofuels industry would welcome a long-term commitment from such a big potential customer. But the House and Senate are moving to put a lid on the price the Pentagon can pay for these alternative fuels.
On May 9, the Congressional Budget Office (CBO) released a new report "Energy Security in the United States" . The report finds, as so many other reports have, that U.S. petroleum dependence remains the single greatest source of U.S. energy insecurity. Pumping more domestic oil will likely do little to improve U.S. energy security or to reduce global oil prices or price volatility. U.S. consumers and the economy will remain vulnerable to the trends, events, and decisions made by others elsewhere in the world that affect global oil supplies and prices. Consequently, for the long term, the report notes that the most effective policy approaches to advance U.S. energy security would be those that result in reducing the use of petroleum, such as providing or encouraging alternatives to vehicle use, increasing fuel taxes , increasing fuel economy standards, or enacting policies that encourage the use of alternative fuels and vehicles that use alternative fuels. For accompanying summary graphics, click here .
In the meantime, the Pentagon is increasingly concerned about its own petroleum dependence. As reported in a previous SBFF post , the Department of Defense (DOD) is the largest single institutional consumer of transportation fuel in the United States, accounting for almost two percent of U.S. petroleum demand. High and volatile petroleum prices can have a big impact on all aspects of military training and operations. For example, every $1 per barrel increase in the price of petroleum costs the Pentagon an extra $130 million a year. The DOD has identified reducing oil dependence to be a strategic necessity, and converting to biofuels is a core part of this strategy. For a May 21 article on this topic, see this Biofuels Digest Special Report .
The White House has made reducing the Pentagon’s petroleum dependence a major priority. On March 16, in an Executive Order , the President invoked Title III of the Defense Production Act , which, among other things, provides the President with the authority to accelerate development and deployment of advanced biofuels for military ships, aircraft, and vehicles. This follows a White House announcement last summer announcing a $510 million initiative between the U.S. Departments of Agriculture, Navy, and Energy to invest in the development and deployment of commercial-scale advanced biofuel production facilities. Further, this coming summer, according to CNN’s This Just In blog , the Navy is planning to deploy for the first time a fleet using a 50/50 blend of advanced biofuels in many of its ships and aircraft.
However, on May 18, the House of Representatives approved a defense authorization bill (H.R. 4310) which could scuttle this initiative. The bill would "prohibit the use of funds for the production or purchase of any alternative fuel if the cost of producing or purchasing the alternative fuel exceeds the cost of producing or purchasing a traditional fossil fuel" (Sect. 314). The bill would allow the Secretary of Defense to purchase small amounts of alternative fuels at higher prices for the purposes of testing and certifying its use in military equipment. In addition, Section 313 would allow the Pentagon to use much more environmentally harmful alternative fuels such as fuel synthesized from coal.
In its May 15 Statement of Administration Policy , the White House objected to these provisions and threatened a veto.
In the Senate, Senators Jean Shaheen (D-NH), Mark Udall (D-CO) and Mark Begich (D-AK), members of the Senate Armed Services Committee, expressed their concern for these provisions in a letter to Admiral Jonathan W. Greenert, Chief of Naval Operations. In his response , Admiral Greenert observed: "There is a clear need to find cost-competitive alternative fuels, given the fiscal challenges the Navy is facing in FY12 alone due to the increases in the price of fuel. The provision in HR 4310, section 314 would restrict the Navy’s ability to pursue access to alternative energy sources to power the fleet. I believe this will impede America’s energy security." However, on May 24, in a roll call vote of 13-12 , the Senate Armed Services Committee approved a similar provision to limit DOD expenditures for the production and use of alternative fuels. The bill moves next to the Senate floor for a debate and vote.
Can the advanced biofuel industry beat the price of petroleum-based fuels anyway? First of all, it should be noted that no commercial-scale advanced biorefineries are currently operating in the United States. As such, the country has a long way to go before it can meet the goals of the Renewable Fuel Standard, let alone supply the DOD. However, a number of advanced biofuel producers, with biorefineries under construction, claim that within the next 12 to 36 months they will be producing advanced biofuels at commercial scale for less than $3.00 per gallon (by comparison, regular gasoline averaged $3.666 per gallon across the nation on May 25). See this May 21 Reuters article for details. If true, that would be good enough to begin meeting the challenge put down by the House and Senate.