Green Strike Group or Green Hike Group? With small-scale advanced biofuels, who foots the bill?

An F/A-18 Super Hornet from Air Test and Evaluation Squadron 23

US lawmakers tussle over funding for advanced biofuels demonstrations and early-commercialization.

Who should pay premium rates for small-scale fuel production? The US Navy and other customer groups? Fuel makers and their investors?

In Washington, the path for the Obama Administration to complete its proposed $510 million Defense Production Act investment in commercializing advanced biofuels for military purposes hit a snag late last week. The House Armed Services Committee backed an amendment, proposed by Texas Republican Michael Conaway, that would ban the DoD from producing or procuring any alternative fuel, if the cost of producing or procuring the fuel exceeds the cost of fossil fuels.

Ironically, the amendment specifically allowed the Navy to purchase advanced biofuels at above-fossil fuel market rates, if those orders were specifically to complete fleet certification. The ban, instead, is aimed, essentially, squarely at the proposed $510 million DPA investment in producing commercial-scale advanced biofuels that would be able to compete on cost with fossil fuels.

Last year, DoD entered into a Memorandum of Understanding (MOU) with the U.S. Departments of Agriculture and Energy pledging a federal investment of $510 million, in partnership with the private sector, to advance the commercialization of U.S. advanced drop-in aviation and marine biofuels to help power military and commercial transportation. Under the terms of the MOU, $170 million would be provided by each participating federal agency. This initiative would bring to market demonstrated alternative fuels and feedstocks technologies for the benefit of American national and energy security.

Section 526 enforcement ban

In addition to the Conaway amendment, the House passed an amendment, 250-173, that would bar any funds being used from the FY2013 Commerce, Justice and Science Appropriation bill to enforce Section 526 of the 2007 Energy Independence and Security Act, which bans the federal government from purchasing alternative fuels that have higher carbon emissions than traditional fossil fuels.

The controversy over costs explodes

The controversy over the cost of the Navy’s advanced biofuels program exploded politically during the winter, when it was revealed that the Navy paid $12 million, or around $26 per gallon, for a 450,000 gallon order of advanced biofuels in order to complete testing and certification of its ships and planes for 50/50 blends of advanced biofuels.

Back in February, Navy Secretary Ray Mabus had received a lashing from committee member Randy Forbes, who said,  “I understand that alternative fuels may help our guys in the field, but wouldn’t you agree that the thing they’d be more concerned about is having more ships, more planes, more prepositioned stocks. Shouldn’t we refocus our priorities and make those things our priorities instead of advancing a biofuels market? You’re not the secretary of the energy. You’re the secretary of the Navy.”

What next? Attention shifts to the Senate

Now, the Senate will take a view, via the budget process, on the Obama Administration’s proposed DPA program. And the President, whose Administration conceived of the advanced biofuels initiative under attack, will also take a view during the budget process.

Last week, the leaders of the Advanced Biofuels Association, Airlines for America, the Algal Biomass Organization, BIO and the American Farm Bureau Federation wrote leaders of the Senate Armed Services Committee and the Defense Subcommittee of the Committee on Appropriations to support the Navy, DOE and USDA MOU.

“As representatives of the farmers who grow energy crops, the advanced biofuels industry that uses plant material and technologies to produce fuel, and the customers who purchase advanced biofuels, we support government policies that improve national security, reduce military operational cost overruns, and diversify military fuel supplies. Accordingly, we are writing to request that you support the Department of Defense’s (DoD) commitment to accelerate production of American-made, advanced, “drop-in” biofuels for use in military jets, ships, and vehicles.” Complete text of the letter is here.

The Great Green Fleet

This week, the Navy will confirm which ships will be involved in a two-day demonstration of its proposed Great Green Fleet, scheduled during the biannual Rim of the Pacific naval exercises around Hawaii from June 29 to August 3, part of a broad-ranging plan to operate a Green Strike Group by 2016 on the 50/50 blends of advanced biofuels and fossil fuels, and reach towards the Navy’s target of meeting half its energy needs with alternative fuels and power by 2020. The fleet exercise will include both jet aircraft and non-carrier ships running on marine diesel and aviation biofuel blends.

The Navy, DOE and USDA Roundtable

The move by the House comes during the same week that the USDA, Navy department, Department of Energy, Department of Transportation and Federal Aviation Administration are sponsoring an Advanced Drop-In Biofuels Industry Roundtable, which will be held at the USDA on Friday (May 18). Nearly 300 people have signed up to attend the one-day roundtable, which will feature presentations from USDA, DOE, the Navy, the Air Force, the Defense Logistics Agency, EPA, the Department of Transportation and the FAA.

The Digest’s Take

For now, no need to panic. The House’s efforts are, to a great extent, election-year politicking. When a $60 per barrel increase in oil, as was seen in 2008, costs the Navy $1.8 billion in unbudgeted expense that must be taken from training an operations, the Navy is highly entitled, most would argue, to pursue a $12 million program to demonstrate and explore alternative fuels without getting shellacked by opportunists on the House Armed Services Committee.

But here in Digestville, we have expressed concern over the practice of producing fuels for military purposes, even in limited quantities, at prices like $26 per gallon.

What’s at stake? The Navy says it uses 1.26 billion gallons of fuel per year – so the market at stake here is roughly $2.52 billion per year. And that practice of shifting the burden of high costs for certification-scale fuels to the public purse is, by any measure, endangering the entire program.

For now, the advanced biofuels industry owes the Navy and the public, if high costs must be undertaken to test and certify the fuels, a clear path towards a clear path to parity-cost fuels, road mapped and milestoned.

In “Tinker, Tailor, Soldier, Fly”, we wrote:

Ultimately, there needs to be a sustainable path to competitively priced fuels. New feedstocks are welcome, but they must be part of a development effort that includes clear, disciplined pathways to affordable fuel. The public may be easily fooled by embedded renewable power charges, since utility bills are tortuously complicated…But fuel is priced in billboard fashion on every street corner. The public is highly tuned in on price. A roadmap to parity, based in firm milestones and dates would be helpful. The USDA, USN and DOE are meeting in DC May 18th to think through the issues. That. for sure, should be item #1.”