Scale-Up of Military Biofuels Could Generate Significant Economic Activity

The Department of Defense’s role in energy innovation and the development of clean energy technologies from basic science through procurement and commercialization has come to the front of policy discussion. This conversation is particularly centered around DOD’s interests in using drop-in biofuels to reduce the department’s significant, costly, and sometimes dangerous reliance on petroleum-based fuels.

According to the Energy Innovation Tracker, DOD investment in basic science, R&D, and procurement of advanced biofuels peaked in FY2010 at $155 million (including ARRA investment) and has fallen to $37 million in FY2012. Ninety-two percent of FY2012 biofuel investment was for research and development.

A November 2012 report prepared by Environmental Entrepreneurs titled, The Economic Benefits of Military Biofuels, finds that meeting DOD’s biofuel utilization targets will generate significant economic activity — between $9.6 and $19.8 billion — and create between 14,000 and 17,000 new jobs by 2020. The report calculates the economic impact of DOD’s scale-up of biofuel usage by starting with the commitments made by both the Navy and the Air Force to replace half of their consumption of petroleum-based fuels with drop-in alternatives within the next four to eight years, outlined in DOD’s 2012 Operational Energy Strategy Implementation Plan. To meet these fuel requirements, the Air Force must add 387 million gallons per year of advanced biofuel capacity by 2016, and the Navy must add 300 million gallons per year of capacity by 2020.

The report’s model assumes that developing a dependable and cost-effective biofuel industry to reach these targets will require investment in four key areas of the value chain: construction of processing facilities, increased and diverse feedstock production, operation costs of additional production capacity, and enhanced distribution networks. Of these areas, facilities construction requires the highest average annual expenditure, with operating costs following closely behind, however facilities construction does not generate long-term economic activity or employment, while operational activities assumingly will.

There is considerable flexibility in designing the production system of advanced biofuels, considering multiple plant, conversion, feedstock, and facilities options. The study considers both high- and low-cost operational estimates for each variable, demonstrating that the economic impacts of scaling up the advanced biofuels industry to meet DOD’s needs are far from trivial. These outcomes are further magnified by spillover effects to the broader economy in what the report refers to as both ‘indirect’ and ‘induced’ impacts from spending by both industry and workers affected by additional production and DOD’s purchases.

ITIF’s recent report Lean, Mean, and Clean II: Assessing Energy Innovation at the Department of Defense tracks DOD’s investments in energy innovation since FY2009 and analyzes the portfolio by military branch, technology, and innovation phase in a first-of-its-kind study. The report concludes, “DOD has embarked on a multi-year effort to develop and procure low-carbon energy technologies and fuels to increase national energy security and improve safe energy access for the Armed Services.” Despite DOD’s particularly narrow emphasis on energy innovation as serving to advance mission security and success, the report - and budget analysis - suggests that there is significant potential for DOD’s accomplishments in advanced biofuels innovation to impact commercial markets.

DOD’s mature innovation ecosystem – unparalleled in capacity and experience within the U.S. government – coupled with its unmatched consumer power – which acquired 117 million barrels of oil in FY2011 – puts the department in a unique position of influence when it comes to the development and procurement of alternative fuels, as well as the growth of an advanced biofuel industry in the United States, which should be pursued by the DOD to strengthen security of its operations.

The Energy Innovation Tracker is a database capturing U.S. federal energy innovation  investment since FY2009. For additional analysis, keep an eye on the Tracker’s blog and follow the Tracker on Twitter: @energyrdtracker.

Photo: U.S. DOD Flickr Photostream