Navigant Research Blog

Senate Bill Threatens Combustible Biofuel Market

— August 1, 2012

The integration of biofuels into the mainstream fuel supply may have taken a step backward. On May 24, a bill passed the Senate Armed Services Committee detailing the stipulations on biofuel use by defense vehicles.  If this bill passes the full Senate, the Department of Defense could be prevented from pursuing its initiative to develop commercially-available biofuels.  In addition, the $642 billion defense authorization bill repeals Section 526 of the 2007 energy bill, which specifies that alternative fuels purchased by the DOD cannot emit more carbon than conventional fuels.  This bill was passed by the House of Representatives in mid-May.

Support of this bill is spotty in Congress. Repealing Section 526 and dismantling the biofuel initiative are independent, as some senators support the initiative but want to repeal Section 526. Support for either seems dependent on the amount of coal and oil production in the senator’s home state.

Should this bill go into law it would be a major hit to the biofuel market in North America.  Currently, the Department of Defense is a key stakeholder in the biofuels industry.  From Pike Research’s 2011 report, Biofuels Markets & Technologies, the following chart breaks down the production of biofuels by geographic region.

Biofuels Production by Region, World Markets: 2011-2021

(Source: Pike Research)

The amount of biofuels produced in North American markets could shrink significantly should this bill pass.  What’s more, a decline in the use of biofuel would inevitably signal an increase in the use of petroleum-based fuels for defense applications.  This could mean an increase in imports of foreign oil, or a heavier dependence on domestic natural gas.  As demonstrated in a recent blog by Mackinnon Lawrence, the prices of these two commodities fluctuate wildly depending upon their domestic use.  However, the military use of petroleum-based fuels is small relative to light-duty vehicle use (2.4% of the total, versus 61% by light-duty vehicles)(NGV-10).  Thus, regulation of military biofuel use makes little difference in the total amount used.  The funding and research into biofuels provided by the Department of Defense, though, represents a major impact to the overall market.  While the overall demand for biofuels in the United States would not be greatly affected, the impact on the entire sector would be dramatic.

Recent innovations in cellulosic biofuel production that have created hope for a stable domestic supply of energy could be undermined by a cut in funding from the Department of Defense.  That’s the last thing this fledgling market needs.

 

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