In the past few weeks we’ve learned that the government spent $9 billion to create 910 green-energy jobs; the Navy bought 450,000 gallons of biofuels for $26 a gallon; and now according to Reuters, “The Pentagon is pushing ahead with a $420 million effort to build refineries to make competitively priced biofuels.”
And this from the same federal government where the U.S. Post Office has been losing $42.3 million a day! What could possibly go wrong?
Recent news stories have pointed to concerns, mostly from Republicans, about the Navy’s decision to sink $12 million in biofuels, at $26 per gallon, to create a 50-50 petroleum/biofuel blend to power a July naval exercise. But the more troubling aspect of the stories got little attention: the Pentagon’s desire to build three biofuel refineries.
The government has committed $210 million — $170 million from the Navy and $40 million from the Department of Energy, half of a proposed $420 million budget — in the hope that private sector companies will take the bait and kick in the other half. By the year 2020, the Navy wants half of its fuel to come from alternative energy sources.
But suppose these government-run refineries don’t meet their annual goal of producing 10 million gallons of competitively priced alternative fuel. There’s good reason to be skeptical.
When Democrats were running Congress they decided to throw $1.5 billion at companies willing to try to develop commercial quantities of cellulosic ethanol — a biofuel made from grasses such as switchgrass, woodchips, the inedible parts of plants and other organic material. Cello Energy Corp. of Alabama agreed to produce 70 million gallons a year. But the company went bankrupt in 2010 without producing a drop. And that’s only one of many similar failures.
The push for a green military comes from an Obama executive order — the source of untold mischief these days — which requires the Department of Defense and other agencies to cut carbon dioxide and other greenhouse gas emissions.
Secretary of the Navy Ray Mabus appears to have taken the order to heart. Not only is he trying to fulfill President Obama’s green dreams, the secretary unashamedly defends spending nearly seven times on biofuel what the Navy would have spent on traditional fuel at a time when Congress is facing huge defense budget cuts.
Mabus says U.S. dependence on foreign oil is a strategic vulnerability that can only be alleviated by reducing our reliance on petroleum as the sole military fuel. But it’s hard to ignore the possibility that the “vulnerability” most concerning Mabus is the president’s reelection bid.
If the desire is to end the military’s dependence on foreign oil, then why isn’t the solution developing more of our own — and that of our close allies’ — oil resources?
And yet the Obama administration has opposed or slow-walked repeated efforts to develop U.S. petroleum resources on federal lands and offshore. And while there is a lot of new drilling in the country, the vast majority is on private land that doesn’t need federal approval.
But even if you buy into the notion that the military needs to embrace alternative fuels, why should the government partner with private sector companies to co-build refineries?
Mabus argues that having the government build large refineries that produce millions of gallons of biofuels will bring the price down. But why not let investors and private sector companies, rather than taxpayers, take that risk? With the airlines and so many other industries dependent on fuel, there is huge market — and profit — for any company that can create affordable biofuels profitably.
Government adventures into business aren’t new. The federal government runs a train system, Amtrak, which lost $1.3 billion in 2011. And a recent report says Amtrak loses $80 million a year just on food, charging $9.50 for a hamburger that costs taxpayers $16, according to the New York Times. Amtrak tickets are only competitively priced because taxpayers subsidize each ticket, and have done so for decades. There is no reason to think the government will be any more effective developing and manufacturing biofuels.
It may make sense to begin considering alternative fuel sources for the military, but only when the private sector has demonstrated that it can produce those fuels in sufficient quantities at a competitive price. And that’s not going to happen just because the Pentagon throws billions of taxpayer dollars at the problem. Indeed, the Navy’s plan to get into the refinery business — like the government’s experience running Amtrak — will likely ensure that it never happens.
Merrill Matthews, Ph.D., is a resident scholar with the Institute for Policy Innovation, a research-based, public policy “think tank.” He is a health policy expert and weekly contributor at Forbes.com. He also serves as Chair of the Texas Advisory Committee of the U.S. Commission on Civil Rights.