Biofuel at $59 per gallon in the US Air Force

Written by dkoplow Posted: 07/17/2012 12:17 PM EDT

A large portion of the spending to develop alternative energy options for the military makes sense.  Delivering fuels to the front lines costs dramatically more than the raw cost of the fuel itself.  Military assessments estimate that the delivered cost of a mission-ready gasoline is almost always higher than $15 per gallon and routinely $20 or $40/gallon.  In extreme cases, such as when jet fuel need to be flown in to remote locations, the cost can be as high as $400 per gallon.  These are mere economic costs.  There are also human costs because fuel deliveries along long and insecure supply lines are routinely attacked, and these attacks result in injuries and deaths.  A recent Forbes article quoted Senator Mark Udall of Colorado as saying that "1 out of every 50 convoys in a combat zone results in a casualty, and the Army has accrued more than 3300 fatalities in convoys since 2001."

Shortening Supply Lines, Replacing Bulk Fuels

A10C thunderbolt, Joely Santiago/U.S. Air Force/Handout Thus, any innovations that reduce the need for long supply lines to fuel forward operations in the military make logical sense.  Replacing oil-fired generators with solar panels is an example, as are waste-to-energy systems that can convert base waste into power rather than having to truck it out.  Investments to improve the energy efficiency of military vehicles of all types make great sense as well.  Not only do the upgrades reduce the need for shipments of fuel at a delivered cost of $17.50 or $40 or $400 per gallon, but the new generations of equipment can operate over a longer range.  The economics are not driven by the average price of fuel outside the military, but by the marginal cost of supplying the front lines.  Incorporating the human cost as well further improves the return on many of these investments.

Biofuels Merely Replace One Bulk Fuel with Another

The logical case is far weaker for substituting one expensive-to-transport fuel with another.  Unfortunately, that is basically what is happening with the military's push for "green" jet fuels.  David Alexander's article in Planet Ark notes that these "drop-in" biofuels cost as much as $59 per gallon to buy.  The fuel producers claim that these high costs are temporary, reflecting small-scale test facilities.  At real production scales, they claim the fuels will be competitive.  Jeff Scheib, vice president for fuels at Gevo, the firm that manufactured the alternative jet fuel in the recent tests, noted in a carefully worded statement that:

Once the company builds a commercial-scale refinery, expected around 2015, "we believe we can be cost competitive on an all-in basis with petroleum jet fuel over the life of a contract," Scheib said.

Color me skeptical.  Scheib is clearly counting on continued federal subsidies to these fuels to help them compete.  Further, there are unanswered questions on whether aerospace applications for biofuels will dramatically restructure the market, or simply outbid land markets for limited, and heavily subsidized, supplies.  One finding from our detailed examination of state and federal subsidies to biofuels for road transport during the surging growth of the biofuels market in 2005 and 2006 was that limited (and uneconomic) supply of some of the fuels were following the largest subsidy dollars -- a process I refer to as subsidy arbitrage.  High state subsidies to biodiesel, for example, would merely pull in more of the country's production to that state.  Expect the same dynamic to occur with military spending on alternative jet fuels pulling supplies from ground markets.

My colleague Ron Steenblik at OECD has been watching the aviation biofuels push brewing for a couple of years, often remarking how similar the political arguments are to what the corn ethanol producers made a few years back for government support to ethanol for ground transport.  Despite Jeff Scheib's claim the aviation fuel producers will compete with conventional fuels, the airline industry itself is quite clear in asking for government handouts:

Industry officials are urging governments to help lift supplies, much as policies in the EU and United States have created a flourishing market in plant-based oils for cars and lorries. The industry contends that sustainable fuels – when combined with aerodynamic design, efficient engines and improved air traffic handling – will reduce emissions even as passenger traffic grows.

I love this language.  It's not just "sustainable" biofuels in aerospace that will result in a lower-carbon industry, but number of rather important (and obviously beneficial) activities such as more efficient aerodynamics, engines, and air traffic.  Add to it higher load factors in the vehicles and we've pretty much got every base covered.

What would be interesting would be to get the industry to assign the percentage of improved emissions attributable to each of the factors.  We would likely see "sustainable fuels" get the smallest credit for the gains.  After all, burning biomass in planes is subject to all of the same sourcing and supply chain complications as biofuels used anywhere else in the economy. The case is gray, at best.

My take-aways on military use of biofuels:

  • The high cost of the fuel in these tests is insignificant as compared to the labor and equipment costs of running the tests.  Despite their expense, the high cost of fuels is but one item on a very long list of things the military could do differently to save taxpayers money. 
  • It makes sense to test alternative fuels in existing equipment, but only to confirm the manner in which they could be used if for some reason that became absolutely necessary. 
  • The push for widespread adoption of biofuels into military equipment makes no economic or military sense.  It is more expensive, and ignores the many complex environmental issues with biomass sourcing that have cropped up with land-based biofuels markets.  Some blends may have lower power densities, and actually reduce mission-readiness and range.
  • In contrast, the military's push to replace delivered fuels with energy sources that have shorter or smaller supply chains does make sense.  I'd much rather see investments into more efficient vehicles, better logistics systems, using "fuels-at-the-front" prices in military budgets so ground-level commanders could see the real prices and make better trade-offs, and increased ability for equipment to use (if necessary) lower grade fuels without breaking.