Report: Pentagon Paid $150 Per Gallon for Green Jet Fuel

GAO report notes exorbitant prices act as de facto subsidy for biofuel firms

May 7, 2014

The Department of Defense (DOD) paid $150 per gallon for alternative jet fuel made from algae, more than 64 times the current market price for standard carbon-based fuels, according to a report released on Wednesday.

The Government Accountability Office (GAO) noted in its report that a Pentagon official reported paying "about $150 per gallon for 1,500 gallons of alternative jet fuel derived from algal oil."

GAO’s report examined the financial challenges facing increased purchases and use of alternative jet fuels by federal agencies. "Currently, the price for alternative jet fuels exceeds that of conventional jet fuel," the report noted.

The price for conventional jet fuel is currently $2.88 per gallon. GAO’s report reveals that federal agencies have paid significantly higher prices in an effort to promote biofuels in commercial and military aviation.

"Of the two alternative jet-fuel production processes approved for use in commercial and military aircraft (Fischer-Tropsch and HEFA), DOD, according to a DOD official, paid from about $3 to $150 per gallon," GAO reported.

HEFA is an acronym for Hydroprocessed Esters and Fatty Acids, and refers to "renewable oil (e.g., vegetable oils, animal fat, waste grease, and algae oil) … processed using hydrogen treatment (hydroprocessing) to yield a fuel in the distillation range of jet fuel and diesel."

GAO interviewed 23 "academic, federal government, and private industry stakeholders" about challenges facing the increased adoption of alternative jet fuels. Twenty-two of them cited the fuels’ exorbitant costs.

"Five of these stakeholders noted that for fuel produced using the HEFA production process, the cost of some types of feedstock—even before it is transported or converted—currently exceeds that of conventional fuel," the report says.

HEFA and other alternative jet fuels are currently produced in large measure by small firms that do not have the economies of scale to manufacture them in a cost-effective way.

To address that problem, federal agencies have been buying extremely expensive alternative fuels as a means of subsidizing those firms.

"Some stakeholders (5 of 23) elaborated that since most fuel producers are generally companies with limited funds and small-scale operations, it is extremely costly for them to produce fuel in large quantities," the report noted.

Purchasing HEFA fuels, some stakeholders said, would allow those businesses to grow their operations and, eventually, market alternative jet fuels at a lower price.

However, those HEFA fuels will still need to be subsidized to be competitive, GAO noted, citing a recent Federal Aviation Administration study.

"Alternative jet fuels produced on a commercial scale using the HEFA process would require a subsidy of $0.35 to $2.86 per gallon to be price-competitive with conventional jet fuels in 2020," the report found. 

The Pentagon has previously come under fire for paying exorbitant prices for aviation biofuels.

Reuters reported in 2012 that the Air Force had purchased 11,000 of alcohol-based jet fuel for $59 per gallon from a Colorado-based biofuel company.

That company, Gevo Inc., was backed financially by high-dollar Democratic donor Vinod Khosla, who has invested in a number of companies that have received federal support from the Obama administration.

A week before that story broke, the Navy spent $26 per gallon to fuel its Great Green Fleet during the 2012 Rim of the Pacific exercise.

The $150-per-gallon DOD reportedly paid for HEFA fuels would dwarf those previous purchases, which came under fire from critics of the Obama administration’s green energy push.

"Though some energy technologies that are too expensive for general civilian use may make sense for the military, biofuels are not among them," wrote Heritage Foundation senior energy policy analyst David Kreutzer in 2012.

"The military needs to rethink its biofuels program."