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On Energy Policy, Navy Secretary Is Either Dishonest or Misinformed

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Lachlan Markay
March 28, 2012 at 10:29 am

In response to a congressional inquiry regarding a Navy purchase of expensive biofuels, Secretary Ray Mabus made numerous claims that are either factually incorrect or misleading regarding federal energy policy and the nation’s oil reserves.

Mabus was responding to concerns raised by Reps. Doug Lamborn (R-CO) and Mike Conaway (R-TX) regarding a Navy purchase of 450,000 gallons of biofuels – the largest-ever federal purchase of such fuel – at $15 per gallon. That is more than three times the price of conventional diesel fuel.

The company providing the fuel, Solazyme, is advised by an energy consultant who helped write the alternative energy portion of president’s stimulus package.

“The math is clear,” Mabus told Lamborn in a letter dated March 23. “Opening up every possible source of oil available to us still would not provide enough to supply all our needs.”

That statement is categorically untrue. The United States has 1.4 trillion barrels of recoverable oil, more than the proven reserves (note: reserves, not recoverable resources) of any other nation, and more than the entire non-North American world combined, according to a study by the Institute for Energy Research.

It is true that the U.S. has only two percent of the world’s oil reserves, a statistic that Mabus cited in his letter in highly misleading fashion. But that measure only accounts for oil that is recoverable at current prices and under current law. In other words, if all government-owned land were open to oil development, that two percent figure would skyrocket.

What’s more, Lamborn did not suggest that all of the military’s energy should be met using oil. The issue is how best to determine what mix of energy sources should be used. The Obama administration apparently believes that bureaucrats, not market forces, are best suited to make that decision, despite evidence that the market is better suited to the task.

Mabus also touted one of the White House’s favorite talking points on energy production. “President Obama’s ‘All of the Above’ energy strategy clearly advocates increasing domestic oil production as much as possible,” Mabus wrote. “In fact, domestic oil production has risen and foreign oil imports have declined in each of the last three years.”

But as Scribe has reported, oil production on federal lands – lands over which the president has authority – is at a nine-year low. The increase in oil production that Mabus cites is due primarily to activity on privately-owned land.

As for oil imports, the decline Mabus cites is primarily attributable to decreases in domestic demand brought on by the economic downturn, and policies put in place by Obama’s predecessor, George W. Bush, according to independent energy analysts.

Mabus went on to cite the potential price shocks that result from changes in global oil prices, claiming, “every dollar increase in the price of a barrel of oil costs the Navy an additional $30 million.”

But unless oil prices rise so rapidly that the per-gallon cost of fuel reaches $15 – the price paid for the biofuels that spurred Lamborn’s letter – even these price shocks cannot cost the Navy as much, per gallon of fuel, as the biofuel purchase in question.

Indeed, Mabus insisted, “a competitively priced and domestically produced liquid fuel that can be dropped in as a replacement to diesel or aviation gas can give us greater energy independence.” But Lamborn’s issue is precisely that the biofuels the Navy purchased are not “competitively priced.” They are many times the price of conventional fuel.

Mabus attempted to deflect that obvious point by noting that alternative energy remains expensive because “we have not provided the type or level of incentives for alternative fuels that we provide the oil industry to encourage exploration and production.”

Again, this claim is untrue. Most of the incentives enjoyed by the oil industry are enjoyed by a multitude of other businesses. They include standard tax write-offs for operating expenses, and tax breaks offered to all manufacturing or natural resource extraction companies. Alternative energy sources, meanwhile, enjoy specific and targeted subsidies aimed at benefitting certain technologies, industries, or companies.

The level of benefits afforded the oil industry is in fact below that given to the alternative energy sector. Tax breaks for oil companies – again, the primary source of federal support – pales in comparison to tax breaks given to alternative energy companies, as a recent Congressional Budget Office report pointed out.

Those facts aside, “every American would be better served by getting rid of all energy subsidies,” Heritage energy policy expert Jack Spencer told Scribe. “The fact is that the federal government doesn’t need to waste taxpayer money to bring new energy technologies on line.”

Spencer noted that if Mabus is correct and oil prices skyrocket to unaffordable levels, market forces would naturally offer a foothold for biofuels and other renewables without making the purchase of economically uncompetitive fuel sources necessary.

The Navy’s biofuel purchase, and Mabus’s defense of it, is part of an ongoing mission “that needlessly bleeds scarce resources away from core missions to advance a political agenda is untenable,” Spencer noted in a report on the effort.

“The White House is pushing the idea that the alternative energy industry would get the kick start it needs if the military will just commit to using them,” Spencer added. “But the assumptions behind this argument are flawed, and the strategy would increase demands on the military budget while harming national security.”

Here is the full text of Mabus’s letter: Mabus Letter

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Navy Buys Biofuels for $15 Per Gallon From Stimulus-Linked Firm

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Lachlan Markay
December 13, 2011 at 11:00 am

A California company has been hired to provide 450,000 gallons of advanced biofuels to the U.S. Navy – the “single largest purchase of biofuel in government history,” according to the Navy – at $15 per gallon, or about four times the market price of conventional jet fuel.

The Institute for Energy Research unearthed the purchase in a recent post on its website:

Last week, the Navy signed a contract with two biofuel companies to purchase 450,000 gallons of advanced biofuels at $12 million to assist in President Obama’s goal to establish a domestic biofuels industry and to advance it in ways that do not require Congressional approval. Of course, given the Navy’s mission, they claim to be pursuing biofuels to ensure adequate fuel in the future without relying on crude from the Middle East or other overseas sources that may be a threat to our national security. While this purchase is only a drop in the bucket compared to the Navy’s annual usage of more than 670 million gallons, their goal is to fuel a normal Navy mission with a 50-percent blend of biofuels and gasoline by 2016.

The company selling the fuel to the Navy is called Solazyme. The company’s corporate board includes “strategic advisor” T.J. Glauthier, who “advises companies dealing with the complex competitive and regulatory challenges in the energy sector today.”

Glauthier was the Deputy Secretary and Chief Operations Officer of the Department of Energy from 1999 to 2001, meaning he has experience dealing with energy issues on both sides of the regulatory equation.

Also of note: Glauthier served (pro bono) on President Obama’s White House Transition Team, where he specifically worked on the energy provisions of the stimulus package, according to Solazyme’s website. Solazyme itself landed a $21.8 million stimulus grant to build a biofuel refinery.

Now the company looks to have scored big once again. But the benefits extend beyond the immediate profit to be made from the sale. As Wired Magazine noted, “the often-struggling biofuels industry will be a lot closer to proving its viability” with Solazyme’s massive Navy contract.

“Our use of fossil fuels is a very real threat to our national security,” the Navy insisted in defending the purchase, apparently in reference to the supposed limits on fossil fuel availability. But as IER noted, the United States sits on enough oil and natural gas to power the country for hundreds of years – if only the federal government would permit expanded exploration and development.

The administration seems to be looking for ways to push alternative fuels without congressional action, and the military is the logical place to start. Heritage research fellow Jack Spencer noticed the trend earlier this year: “The Pentagon and the environmental movement seem to have found common cause by linking America’s national security to the basic tenets of the President’s green agenda,” Spencer noted. “Unfortunately, there are real costs for national security, energy technology, the taxpayer, and the American consumer.”

Government efforts to prop up favored industries also tend to benefit the politically connected. Solazyme certainly fits the bill.

(h/t J.E. Dyer and Whitney Pitcher)

Posted in Energy and Environment, Featured, Scribe

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