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Opinion: Parochial Interests Threaten Biofuels

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A wave strikes the side of to the Military Sealift Command fleet replenishment oiler USNS Henry J. Kaiser (T-AO 187) as it conducts a replenishment at sea with the aircraft carrier USS Nimitz (CVN 68) on July,7.[U.S. Navy Photo]

A wave strikes the side of to the Military Sealift Command fleet replenishment oiler USNS Henry J. Kaiser (T-AO 187) as it conducts a replenishment at sea with the aircraft carrier USS Nimitz (CVN 68) on July,7.
[U.S. Navy Photo]

The U.S. Navy kicked of its annual Rim of the Pacific (RIMPAC) exercises last Friday and will use the world’s largest naval exhibition to test its concept for powering expeditionary operations on biofuels. A carrier strike group, dubbed the Great Green Fleet, is the culmination of several years of testing in the biofuels arena and will serve as the Navy’s first top-to-bottom test of a force that could go to war powered by alternative energies. But parochial interests in Congress threaten to undo the Navy’s progress on biofuels and undermine efforts to build a cost-competitive biofuels market.

When the House Armed Services Committee took up its annual debate over the National Defense Authorization Act (NDAA) for fiscal year 2013, questions about the Navy’s biofuels program quickly came to the forefront. When the bill hit the House floor in May, two provisions had been added during markup of the bill by Rep. Mike Conaway (R-TX). Biofuels backers see the provisions as an attempt to undercut the Navy’s ambitious effort, which they contend hurts efforts to stabilize Defense Department fuel costs and offset DOD’s dependence on foreign fossil-based fuels.

The first provision, which is more symbolic than substantive, exempts DOD from the so-called Section 526 requirements contained in the Energy Independence and Security Act of 2007. The section requires government-purchased alternative fuels to have a lower greenhouse gas impact than current fossil fuels. DOD says it doesn’t need the waiver, but, within the biofuels industry, section 526 is seen as a levy holding back cheaper but more pollutant-intensive fuels like coal-to-liquid.

The second of Conaway’s provisions would ban DOD from spending money on alternative fuels that cost more than fossil-based fuels. Conaway says that the provision is designed as a cost-cutting maneuver.

“How do we do all these things when we’re borrowing 40 cents on every dollar we spend?” Conaway said at the committee’s 9 May markup session. But DOD says cost is one of the driving factors of the push for alternative fuels.

According to DOD, the volatile global oil market makes planning for annual fuel costs difficult. Pentagon statistics say that every one-dollar increase in per-barrel fuel prices increases the annual fuel budget by $130 million, or more than $356,000 a day.

Secretary of the Navy Ray Mabus has been DOD’s leading advocate for biofuels programs, pushing the Navy’s Great Green Fleet effort at this year’s RIMPAC. The Great Green Fleet initiative and an agreement between Mabus, Energy Secretary Steven Chu and Secretary of Agriculture Tom Vilsack to cooperatively develop a biofuels market has been at the heart of the debate since last year.

At the Navy’s 16 February posture hearing, Mabus came under fire from Rep. Scott Rigell (R-VA), who, like Conaway, argued that the service’s focus on energy investment was misguided given what he called a “competition for scarce resources” within the Defense Department. Readiness Subcommittee Chairman Randy Forbes (R-VA) attacked the fuels initiative for pulling resources away from other priorities, such as the Navy’s shipbuilding budget. Both Forbes and Rigell represent Virginia’s Tidewater region that is home to the shipbuilding giant Huntington-Ingalls Industries.

But while Forbes and Rigell attacked the Navy’s biofuels initiatives, neither offered amendments on renewable fuels at this year’s markup. Conaway did. Democratic aides say Conaway also was motivated by parochial interests. Congressional Quarterly cited an anonymous senior Democratic aide as saying the oil and gas industry oppose DOD’s biofuels initiatives and view efforts to set up a biofuels market as a threat. Conaway’s West Texas congressional district depends heavily on the oil industry, but Conaway says his interests are not parochial.

Senate Action

When the NDAA moved to the Senate in late May, Mark Udall (D-CO) and Patty Murray (D-WA) geared up to back DOD’s push on biofuels, but a challenge from Oklahoma Republican Jim Inhofe, who opposes DOD’s alternative-energy initiative, proved difficult to beat back.

Inhofe called the green fleet effort part of the Pentagon’s “war on affordable energy” and said the administration should focus instead on funding initiatives such as the Keystone XL Pipeline.

Earlier this year, Inhofe blasted Mabus for the DOD’s biofuels initiative, saying at a 16 March Senate Armed Services Committee hearing that “the administration is gutting our nation’s defense budget and forcing our Navy and Marine Corps to cut personnel, ships and aircraft” to pay for alternative energy programs. In May, Inhofe said, “The real threats to national security are policies that force DOD to expend increasing amounts of its scarce resources on extremely expensive alternative energy.”

Inhofe’s home state of Oklahoma is the fifth largest oil producer in the nation. The oil town of Cushing, an hour outside Inhofe’s hometown of Tulsa, is one of the largest oil hubs in the country, and serves as the terminus for the current Keystone pipeline with a capacity of 590,000 barrels of oil a day. It would also be a major hub for the controversial Keystone XL project.

Inhofe’s efforts to kill DOD’s energy programs were only partially successful. Picking up key support from ranking committee member John McCain (R-AZ), two amendments passed on separate 13-12 votes. One amendment bans the Defense Department from using funds for the construction of a biofuels refinery. The second amendment prevents it from purchasing biofuels at a cost greater than those of conventional fossil fuels, similar to Conaway’s language in the House—though it does permit additional purchases of biofuels for testing.

A measure that would have granted a waiver for the Section 506 language failed.

Damn the Torpedoes

The end result of both chambers’ deliberations are less than ideal for the Navy, which had hoped to continue moving forward aggressively with its biofuels program by beginning to use the new fuels operationally. But while Congress has signaled its intent to limit DOD’s pursuit of biofuels, none of those provisions will become law until after both the House and Senate go to conference on the larger Defense bill, which might not occur until after November’s elections.

The Navy is not waiting for Congress and is continuing to move ahead with efforts to stand up a biofuel industrial base. Under the Defense Production Act passed by Congress in 1950, DOD is given broad latitude to pursue new research initiatives it deems critical. In particular, Title III of the act permits the administration to control portions of the civilian economy that are responsible for mining, or in this case producing, critical or scarce materials necessary for national defense. In recent years, President Barack Obama has used this authority to fund innovations in ground-vehicle armor, secure beryllium supplies used in weapon systems, and develop vacuum tubes for long-range space-based communications. It is under this same protocol that the Navy, joined by the Agriculture and Energy departments, is continuing work on growing the nation’s biofuel refining capacity.

On 27 June, a solicitation was released for the planning and preliminary design of a facility to produce advanced, drop-in biofuels. The government’s share of the public-private venture is $30 million, covering about half the cost of the project.

The drop-in replacement biofuels to be produced under the program are unique from earlier biofuel types. The new generation of fuels is chemically identical to fossil-based jet fuels, possessing the same combustion characteristics, known as aromatics. This shared chemical identity allows them to be dropped into already existing military and commercial fuel storage systems and, depending on refined type, burn exactly the same as jet propellants JP-5 and JP-8 and F-76 military diesel.

According to the solicitation, which was issued by the Air Force Research Lab at Wright Patterson Air Force Base in Ohio, “the goal of this project is to establish one or more complete domestic value chains capable of producing drop-in replacement biofuels” that “includes feedstock production and logistics, conversion facilities, and fuel blending, transportation, and logistics.” The two-phase project is targeting a production rate of 10 million gallons of the new fuel per year, which is less than a third of what the Navy uses annually but would be 20 times the amount being used during this year’s RIMPAC exercises.

RIMPAC

During the six-week Rim of the Pacific exercises, the Navy says it will use roughly 900,000 gallons of a specialty blend of biofuel and fossil-based fuel to power its Great Green Fleet demonstration, the final major milestone before the planned operational deployment of a battle group using biofuels by 2016

The USNS Henry J. Kaiser (T-AO-187), a replenishment oiler stationed with the 3rd Fleet, left from the Defense Fuel Support Point in Manchester, Washington, in mid-June, carrying the 700,000 gallons of hydro-treated renewable diesel fuel and 200,000 gallons of the aviation version to Hawaii for the exercises. The biofuels used for the blends—dubbed HRJ5 for aviation and HRD76 for marine diesel—are a combination of waste cooking oil and algae-derived oil.

While under way, the Kaiser will demonstrate the first of many essential fleet tasks, transferring the HRJ5 fuel to the aircraft carrier USS Nimitz (CVN-68) and then the HRD76 to the guided-missile cruiser Princeton (CG-59) and destroyers Chung-Hoon (DDG-93) and Chaffee (DDG-90).

The bulk of deepwater operations begin next week.

Killing Biofuels Kills Jobs

Biofuels is a growing industry and the Navy is on the forefront of that growth as evidenced by its solicitation last month to spur investment in the creation of bio-refineries. But questions remain about the large-scale, long-term viability of a biofuels market.

On Capitol Hill, language that targets the Pentagon’s biofuels program adds increased pressure to a developing industry, stoking instability across all renewable energy businesses seeking to expand in a burgeoning marketplace, some corners of which have already been ceded to China and Europe. As with any industry, the threat of prescriptive legislative restrictions leaves employers uneasy about moving ahead with expansion and new hiring, and certainly the ongoing debate over the future of the biofuels sector adds to that unease. The rhetoric on Capitol Hill ultimately has the effect of slowing job growth among biofuel producers and refiners.

The effects of the ongoing debate are hard to quantify in terms of individual job numbers and it is difficult to say for sure how many positions are not being created today because of uncertainties on Capitol Hill. But, moving ahead with language that undermines the long-term development of a biofuels industrial base would have significant impact on U.S. and global markets. According to the Global Renewable Fuels Alliance, the biofuels industry contributed $277.3 billion to the global economy in 2010, producing more than 29 billion gallons of fuel and supporting nearly 1.4 million jobs across all sectors. According to the group, the global biofuel industry is forecast to produce nearly 52 billion gallons a year and support more than 2.2 million jobs by 2020, and that statistic does not include efforts that could develop from last month’s DOD solicitation. The United States, Brazil, and Europe are currently the three largest producers of biofuels.

DOD is on the ground floor of America’s innovations in biofuel as it continues to work with private industry to help creat a cost competitive marketplace that can service both DOD and the commercial airline sector.

Commercial Effects of Biofuels Market

The airline industry feels the impact of rising and falling fuel prices every day, and that volatility is reflected in the air fares, luggage fees and other surcharges passed on to consumers. Even airlines such as Southwest, which set up a series of fixed-price fuel agreements several years ago, will face the pinch as fuel prices increase on supply declines and market volatilities.

According to the International Air Transport Association (IATA), the global airline industry could see its profits drop 62 percent from last year, driven in large part by a 12 percent increase in fuel costs over the second quarter of FY2012. These per-barrel price fluctuations sowed by instability in the world’s largest oil producing regions have created significant uncertainty that is increasingly driving the private sector toward biofuels. In all, fuel makes up a third of airline costs, according to the IATA.

As the industry on the whole looks to lose $4.9 billion this year, airlines are looking at the alternative fuels market as an important hedge.

Last year, carriers Lufthansa and Qantas each flew a series of flights on biofuels, including the first transatlantic flight. By the end of last year, U.S. carriers also were flying on the new fuels. United-Continental flew its first flight on a biofuels blend from Houston to Chicago in November 2011. Alaska Airlines began a demonstration program that lasted 75 flights in total, shuttling passengers on a biofuel blend between Seattle and Washington, D.C. According to a report on the Alaska Airline’s effort, the company initially wanted to run 150 flights in the demonstration, but couldn’t find enough biofuel, a problem the Navy-led bio-refineries effort aims to solve.

A key argument against biofuels has been cost, especially in the latest spat on Capitol Hill, and those questions are extending to the private sector as well. But the price for biofuels remains higher than conventional fossil fuels in part because purchases continue to be made on an ad hoc basis for demonstration projects, testing, and certification efforts. With the growth of an industrial base, supply will increase, allowing the market to meet demand at a significantly reduced cost.

“We use two percent of all the fossil fuels that the United States uses,” Mabus said at a conference last month. “And one of the things that this means is that we can bring the market. And to paraphrase the old Field of Dreams line, if the Navy comes, they will build it.”

While, no one can say for sure when the cost curve for oil will rise above the price point for biofuels, long-term pricing data show fossil fuel prices continuing to rise as the cost of biofuels diminishes. How quickly the price of biofuels comes down may very well depend on how strongly Congress chooses to act either in favor of or against, parochial interests.

 

Categories: Budget Industry, Education Legislation, U.S. Navy

About Ryan M. McKeon

Ryan M. McKeon worked for six years as a military legislative assistant and senior legislative assistant on Capitol Hill, serving as chief adviser on defense, intelligence and foreign policy issues for Reps. Gabrielle Giffords (D-AZ), Carol Shea-Porter (D-NH) and G. K. Butterfield (D-NC). He now works as an analyst for ANSER, a nonprofit defense think tank headquartered in Shirlington, Va.