GAO report addresses DOD alternative fuels investments

By Erin Voegele | August 12, 2015

In late July, the U.S. Government Accountability Office published a report focused on U.S. Department of Defense investments in alternative fuels. The report notes that while the DOE has purchased small quantities of alternative fuels for testing and demonstration purposes, it has not yet done so for military operations.

Within the report, the GAO indicates it was asked to examine aspects of DOD’s investments in alternative fuels. As a result, a report has been delivered to the chairman of the House Committee on Armed Services that reviews the extent to which DOD has purchased alternative fuels and demonstrated that those fuels can meet safety, performance and reliability standards; has a process for purchasing alternative fuels for military operations that takes into consideration any cost differences between alternative and conventional fuels; and has used Defense Production Act authorities to promote the development of a domestic biofuel industry.

According to the report, the DOD purchased approximately 2 million gallons of alternative fuels for testing purposes from 2007 through 2014 at a cost of approximately $58.6 million. This includes approximately 450,000 gallons purchased for the Department of Navy’s July 2012 Great Green Fleet demonstration, which was part of a larger, biennial multinational maritime exercise, known as the Rim of the Pacific exercise. Over the same period, the DOD purchased about 32 billion gallons of petroleum fuel at a cost of $107.2 billion.

In the report, the GAO highlights the higher per-gallon price of the alternative fuels, noting that the DOE is currently purchasing alternative fuels for testing purposes at a premium price. The report explains that the marginal unit cost of producing a commodity at small scale with new processes being researched and developed is typically much higher than the cost of producing the same or similar commodities using existing large-scale commercial production facilities.

The report details the DOD’s testing process for alternative fuels and notes that, to date, the DOE has approved the use of alternative fuels made from two production processes and continues to test others. According to the GAO, certain alternative fuels made from the Fischer-Tropsch and hydroprocessed esters and fatty acids production processes have been tested and approved for use in Navy aviation and ship platforms, Air Force aviation assets, and Army tactical and combat ground vehicles and ground support equipment, but not yet for Army aviation assets. Alternative fuels produced using the two approved processes are approved for up to a 50 percent blend with conventional fuel. According to the report, the alternative fuels that were used in the testing processes included fuels derived from natural gas, coal and renewable biomass feedstocks sources.

The report cites Army officials as stating testing processes for alternative fuels made from the Fischer-Tropsch and hydroprocessed esters and fatty acids production processes, as well as fuel made from the alcohol-to-jet production process, for use in Army aviation assets is complete. The test results are undergoing review in order decide if these fuels will be approved for use in Army aviation assets. Army officials also noted they plan to complete the testing of alternative fuels made from the alcohol-to-jet production process for use in tactical and combat ground vehicles and ground support equipment by the end of the year. In addition, they plan to start considering the use of alternative fuels made from synthesized iso-paraffins and catalytic hydrothermolysis production processes for use in tactical and combat ground vehicles before the end of the fiscal year 2015 by purchasing fuel and beginning some testing. The report states testing for alternative fuel made from the alcohol-to-jet and synthesized iso-paraffins production processes in aviation platforms is complete, while testing of these fuels in ship platforms is ongoing. The Navy has also begun testing alternative fuels made from catalytic hydrothermolysis and hydroprocessed depolymerized cellulosic production processes.

Regarding the purchase of alternative fuels for military operations, the report notes the DOE is required to consider whether alternative fuels are cost-competitive with conventional fuels. The report explains that currently, the DOD may not obligate or expend funds made available for fiscal year 2015 to make a large-scale purchase of alternative fuel for operational purposes unless the fully burdened cost of that fuel is cost-competitive with the fully burdened cost of conventional fuel. However, with requisite notice to the congressional defense committees, the secretary of defense can waive the limitation. According to the report, the secretary is required to notify the congressional defense committees no later than 30 days before the purchase date if the DOD intends to purchase an alternative fuel for operational use that has a fully burdened cost that is in excess of 10 percent more than the fully burdened cost of conventional fuel for the same purpose.

According to the GAO, the DOD’s first attempt to purchase military operations through its large-scale fuel program occurred in June 2014 for the purchase of jet propellant-5 jet and naval distillate fuels. The USDA made available approximately $27 million in Commodity Credit Corp. funds to support successful biofuel contract awards. According to the DOD, proposals with biofuels bids for only naval distillate fuel but not jet propellant-5 jet fuel were received. However, none of the submitted proposals met all of the technical evaluation factors and none of the fuel contract awards announced in February were for alternative fuels. DOD’s second attempt to purchase alternative fuels for military operations through its large-scale fuel program began in April. The USDA has made available approximately $66 million in Commodity Credit Corp. funds to support successful biofuel contract awards. Proposals were due May 18 and the DOE is expected to make contract awards before Oct. 1.

A full copy of the report, titled “Defense Energy: Observations on DOD’s Investments in Alternative Fuels,” can be downloaded from the GAO website