How the Navy’s Incompetence Sank the “Green Fleet”

In October of 2009, Navy Secretary Ray Mabus took the stage at a hotel ballroom in Virginia to announce the military’s most ambitious energy plan in decades: a break with the U.S. fleet’s strict dependence on oil. Instead, he declared, the Navy would get half of its fuel and power from clean, alternate sources by 2020. Leading the way would be an aircraft carrier strike group — the ultimate symbol of American naval power — running on nothing but biofuels and other renewables.

Equipping this “Great Green Fleet” wouldn’t be easy, Mabus said. The Navy consumes 1.6 billion gallons of petroleum per year, while advanced biofuels are only produced in the tiniest of quantities — which means they’re insanely expensive, many times the cost of its fossil equivalent. But these were solvable problems, Mabus assured the audience. Navy ingenuity could help overcome any technical hurdles, and the Navy’s weight in the marketplace would drive economies of scale, bringing down the price of biofuel.

“Right now I’m told 40 percent is a more realistic goal and even that remains difficult because of the cost and logistics,” he told the assembled troops and civilian researchers, comparing the effort to John F. Kennedy’s race to the moon. “But you know, our Navy and Marine Corps has never backed away from a challenge. With hard work and innovation from everyone in this room …  we can get there. To paraphrase the movie Field of Dreams: if the Navy comes, they will build it.”

On Wednesday, the Great Green Fleet is scheduled to make its first demonstration voyage in Hawaii, just as Mabus promised it would. But this is hardly the triumphant moment that the Navy Secretary depicted back in that hotel ballroom. Support for the Great Green Fleet — and for Mabus’ entire energy agenda — has collapsed on Capitol Hill, where both Republicans and Democrats have voted to all but kill the Navy’s future biofuel purchases. In the halls of the Pentagon, the Navy’s efforts to create a biofuel market are greeted with open skepticism. Even inside the environmental community, there’s deep division over the wisdom of relying on biofuels. And while the Navy has tried to deflect questions about the cost of its renewables push, a little-noticed Defense Department report shows that the Navy could spend as much as an extra $1.8 billion per year if it buys all the biofuel it’s pledged to burn.

Mabus’ signature energy effort is now at risk of being stillborn. And if it goes, it could halt the progress of the broader biofuels industry for decades. How that happened is a story of the Navy’s unforced errors.

One Crucial Thing

For weeks before he was confirmed as Secretary of the Navy, Ray Mabus spent day after day in a windowless office on the Pentagon’s third floor. He’d get a new briefing every hour on a new issue. But one topic kept re-appearing: energy. Not only did the petroleum supply come from an unstable Middle East; every time the cost of a barrel of oil went up by a dollar, the Navy had to spend another $31 million, wreaking havoc on long-planned budgets. In Afghanistan, the U.S. military burned 22 gallons of diesel per troop per day. Dozens of Marines had lost their lives hauling fuel to remote bases. ”It was a vulnerability for us as it was an area that we could not control,” says Mabus, a former Mississippi governor, ambassador to Saudi Arabia, and early supporter of Barack Obama’s presidential run. The new Navy Secretary had found his signature issue.

“I had the background, I mean, I’ve been to Saudi. And one of the lessons I hoped I learned as governor was there were a thousand things I could do to make a difference, but if I didn’t try to get a few things done well, I wouldn’t get anything done,” he says. “So I tried to find what the crucial thing I could get done in the Navy. Number one was to make us a better fighting force. And number two was to help us be more independent. Energy just kept jumping out.”

Halving the Navy’s fossil-fuel intake in a decade is an extremely ambitious goal — and one that quickly appeared at Navy conferences, panel discussions and congressional testimony. But how Mabus and his subordinates arrived at that very specific target is a mystery. In interviews, they repeatedly referred me to studies on renewable fuels conducted by the research firm LMI and by graduate students at MIT’s Solan School of Management. But those reports were published in 2010 and 2011 — long after Mabus had settled on his plan.

One thing that was instantly clear: In the Great Green Fleet, Mabus’ team couldn’t have chosen a more powerful symbol to showcase their alt-energy push. There are 12 operational, full-sized aircraft carriers in the world. One is French. The other 11 are American. And they do not travel alone. Accompanying each 100,000-ton behemoth is a “carrier strike group” of nine fighter-jet squadrons, a dozen helicopters, a guided missile cruiser, at least one destroyer, and an oiler. Once assembled, these groups are offensive powerhouses that dominate hotspots from the Libyan coast to the Taiwan Straits. On the geopolitical chessboard, they are the queens.

If the Navy could turn a strike group green, it’d be a sign that this renewable push was for real. A short demonstration sail was scheduled for 2012, with a full-blown mission slotted for 2016. ”It’s a way to show that this is not a fad, this is not a flavor of the day,” Mabus explains. “This is actually going to happen.”

It couldn’t have been lost on the long-time politician that this fleet would fit into the agenda of a new president promising a wave of green jobs. The focus on alt-energy appealed to Mabus’ sense of history, as well. The British and American navies had helped create the market for coal, oil, and nuclear power. Why couldn’t the Navy do the same with renewables today?

Biofuel was a market in need of some help. Over the years, a new batch of so-called “second generation” biofuel companies had mastered the chemistry needed to turn everything from algae to chicken grease into efficiently burning fuels. The Navy even flew one of its supersonic fighter jets on a blend of mustard seed oil and traditional jet fuel. The problem lies in producing those advanced biofuels in useful quantities. In 2007, Congress set a goal of producing two billion gallons of advanced biofuels within five years. But today, firms can only generate around 40 million gallons of the stuff — 98 percent less than the original plan’s total.

One reason why: Biofuel companies aren’t like high-tech firms that can start small and slowly scale up. A new biofuel refinery could cost anywhere from $65 to $300 million to build. (And that doesn’t even begin to address the costs involved with farming the land or transporting the product.) Investors are hesitant to lend out that kind of money without major customers who are committed to buy the fuel; customers are skittish about making those kinds of commitments until they know the biofuel-maker can actually deliver. Currently, there’s not a single commercial-grade biorefinery operating in this country (although several are in the works).

“You need that big anchor customer. And the Navy can afford a premium, because it knows how much petroleum really costs,” explains Brook Porter, an investment partner at the venture capital firm Kleiner Perkins Caufield & Byers, which has put more than $1.5 billion into so-called “clean tech” companies. For some of these firms, a big military contract could mean the difference between life and death.

After meeting with Porter and other venture capitalists in Hawaii, at the Pentagon, and at the posh Waldorf-Astoria Hotel in Manhattan, Navy officials decided to go far beyond simple pledges about being a willing biofuel customer. The Navy — along with the Departments of Agriculture and Energy — would each invest $170 million directly in biorefineries in their attempt to kick-start the flagging industry. The three agencies made their announcement in August of 2011. They were promptly swamped by green companies looking to collect government cash.

Lost Causes

Mabus was used to being the center of attention. He had been a national figure for longer than most of his sailors had been alive. The son of a Mississippi timber magnate, Mabus served two years in the Navy — including a stint as a surface warfare officer on the U.S.S. Little Rock — and then went to Harvard Law School. In 1980, he came back to Mississippi to work for Gov. William Winter. Eight years later, he took Winter’s old job — and instantly became the subject of fawning profiles, like this one in the New York Times Magazine:

“When Mabus was inaugurated last month in Jackson, becoming, at 39, the youngest Governor in the nation, there was a tangible sense of moment in the capital… The balls and celebrations during the week carried an uncustomary air of youth and elegance. Mabus, who is Hollywood handsome, and his attractive, dark-haired wife, Julie (herself a Columbia M.B.A.), both had successful careers outside of Mississippi. Other Mississippians who’d left the state, many of whom never gave a thought to politics, were drawn back by the event…’It’s finally fashionable to be intelligent in Mississippi,’ says Dr. James G. Wilson… ‘Camelot has come to Mississippi.’”

Camelot on the Gulf Coast didn’t last long. Mabus, who made school reform the centerpiece of his campaign and administration, managed to pass a dramatic raise in teachers’ salaries. Then he got into a toxic fight with the legislature over how to pay for the rest of his education package. It turned voters off, and by 1992, Mabus was out of office.

Mabus’ legion of long-time supporters see his political defeat as an honor badge, a sign that he was willing to sacrifice his career in order to do the right thing. But there’s a less generous counter-argument to be made: that Mabus fumbled the politics of his signature issue, setting back the cause of education reform and sinking his entire administration.

“I like lost causes,” Mabus tells me when I visit him in his Pentagon office. He’s referring to his love of the Boston Red Sox, an allegiance he picked up in his Harvard days. It’s hard not to think of his education push back in Mississippi — or his green energy effort today.

Mabus has irritated many in the naval community by taking what appears to be a partisan approach to being secretary. In February, Mabus named a ship the Gabrielle Giffords, after the Democratic Congresswoman shot in the head in 2011. On Cinco de Mayo, Mabus christened the U.S.S. Cesar Chavez. (The civil rights leader once called his two years in the Navy “the two worst years of my life.”)

Some in the naval sphere see Mabus’ energy push as a similarly political maneuver. Certainly, it’s brought him closer to the White House. President Obama has publicly and repeatedly hailed Mabus’ biofuel push as a shining example of innovative government. But in Navy circles, there were questions about why Mabus spent so much of his time on energy issues while the sea service’s budget was being squeezed. The Pentagon’s latest financial plans call for Navy shipbuilding to be cut by $13 billion over four years, from 57 ships to 41. That means the Navy will have to cope with an older, creakier force — just as it’s being asked to counter a rising China in the Pacific. (Last October, GOP presidential candidate Mitt Romney pledged nearly $40 billion to build more ships and “reverse the hollowing of our Navy.”)

“Where’s the Secretary of the Navy?” asks Rep. Randy Forbes, a Virginia Republican and one of the most important legislators on Navy issues. “How come he’s not here pounding on the desk saying, ‘You can’t keep taking my ships away’?”

“He’s absent on all these things, and yet he’s coming in and fighting for these biofuels,” Forbes adds. “It’s what’s angering people in Capitol Hill.”

Making matters worse has been the Navy’s reluctance to give specifics about the biofuels program. Although Mabus has given speech after speech in favor of his renewable energy goals, he and his staff have been reluctant to have anything more than a surface-level discussion of the plan’s merits, according to more than a half-dozen sources in the Pentagon, on Capitol Hill, and throughout the broader military community.

In a March 29th congressional hearing, for example, Forbes asked the Pentagon’s top energy officials over and over again how the Navy came up with its 2020 renewables plan, and what it might cost. This response, from Navy assistant secretary Jacqueline Pfannenstiel, was typical:

“I’ll have to indicate that when that goal was laid out, my understanding — and I wasn’t part of the team that developed that goal — but my understanding of the goal was that in fact it was, as I said. It was a number that was thought to be and estimated to be achievable but truly a stretch goal.”

Forbes didn’t find the answer particularly satisfying.

More curious still was the fact that no one from the Navy ever followed up to give Forbes a more complete response — even though the the Virginia Republican helps oversee the Navy’s budget as part of the House subcommittee on seapower. In fact, Mabus has never met in private with the congressman, or with the chairman of the seapower subcommittee, Rep. Todd Akin. “I continued to ask for an analysis of the assumptions that went into this [energy plan]. Time after time, no analysis ever came,” Forbes says. “It’s almost embarrassing.”

I experienced something similar, trying to investigate the Navy’s renewables effort. Last fall, for example, I asked a seemingly simple question about which ships might be used in the Great Green Fleet demonstration. Navy officials first told me that information was classified. Then they said that Mabus wanted to make the announcements about the ships himself. Finally, I was informed that the Navy wasn’t exactly sure which ships it would use for the demonstration.

Months later, I asked Tom Hicks, Pfannenstiel’s deputy, the same basic questions that the congressman tried to ask. For example, how much would reaching the Navy’s biofuel goals really cost? Hicks replied, ”If you’re looking for some report, Noah, I don’t know if that exists.”

In fact, there is such a study, commissioned by the Department of Defense and quietly published last summer. According to this report, the Navy will need to buy 336 million gallons of renewable fuel per year in order to meet its aim. Each gallon will cost between $1.43 and $5.24 more than petroleum. Which means the Navy could wind up spending an extra $1.89 billion annually on biofuels (.pdf). In comparison, a new destroyer costs about $1.6 billion, at a time when the shipbuilding budget is getting cut.

The chances that the Navy will ever get to spend that money, however, are growing dim.

Picking Winners

The American government has tried to build a biofuel economy before. In 1980, Congress began a major investment in the production of corn-based ethanol with a 45-cents-ger-gallon subsidy. Thirty years and $45 billion later, that program is widely considered to be a disaster, with uneven environmental benefits, at best.

Cars that run on ethanol do emit less carbon and other particulate matter than gas-guzzlers. But growing enough corn for the ethanol takes a lot of land — and a lot more water and pesticides. The growth in corn-based ethanol also means less corn for food, which means higher food prices. At least 40 percent of the U.S. corn industry is now diverted into producing biofuel.  The growth in ethanol during the last decade helped tighten food supplies, and contributed to 14 percent of the increase in global food prices, which altogether finally hit the roof in 2011. That worsened a famine in Somalia and helped topple governments. Prices stabilized somewhat in 2012, but are expected to increase as a growing drought kills vulnerable corn crops in the Midwest, and higher some more over the decade.

The Navy swore it wouldn’t repeat ethanol’s mistakes. In its request for biofuel proposals, the service told suppliers that their feedstocks couldn’t compete with traditional farmland. But that may be a fantasy, says Michael Oppenheimer, a professor of geosciences and international affairs at Princeton University. ”The point is, no land is used for nothing,” he tells Danger Room. “If you use crop land, you increase the price of food. Using ‘new’ land would work — if you depend on a bunch of technologies which haven’t been commercialized yet, a bunch of things that don’t really exist in this world.”

A June 2010 study by a trio of MIT professors concluded that the kinds of renewable fuels eyed by the Navy could produce “modest (~10%) to large (~50%) reductions in emissions that contribute to global climate change.” Those reduced emissions could come with a heavy cost, however. Fuel crops have many of the traits of an “invasive species.” And biofuel production “would aggravate regional strains on freshwater supply and local infrastructure.” In other words, if these advanced biofuels aren’t handled just right, they run the risk of becoming ethanol 2.0.

Some of the Obama administration’s recent green tech pushes haven’t exactly inspired confidence in the government’s ability to pick and manage renewable winners. One deal has undermined trust more than all the rest: the $535 million in loan guarantees to the politically–connected solar tech firm Solyndra. President Obama called Solyndra “an engine of economic growth” and “the future.” The fact that one of the company’s founders was a major Obama fundraiser probably didn’t hurt the company’s reputation in the White House. But Solyndra’s products were too pricey to compete with a flood of new, Chinese solar panels. The company went bankrupt in August 2011. GOP presidential hopeful Mitt Romney later called the Solyndra affair a case of “crony capitalism.” The broader Republican party seized upon a potent new line of attack again the president.

In Washington, there is near-universal agreement that the military has to do something to make itself energy independent. But the legacies of ethanol and of Solyndra made the Navy’s biofuel plans a difficult proposition to accept.

Shot Down

The White House and the Navy kept on pushing, despite the headwinds. In August, a few weeks before the Solyndra bankruptcy, Obama declared that “biofuels are an important part of reducing America’s dependence on foreign oil and creating jobs here at home.” The move only made Republicans more suspicious of the Navy’s plans to kickstart the biofuel market.

In December, the Navy made the biggest purchase of advanced biofuels in military history: 900,000 gallons of a 50/50 blend of traditional and renewable fuel to be used in the Green Fleet demo. Most would come from animal fats and greases, thanks to a Tyson Foods spin-off; the rest would be made from algae, thanks to a South South Francisco firm called Solazyme. The cost: $13 per gallon, about four times the cost of old-school fuel.

That amounted to $12 million — a rounding error in a defense budget in the $600 billion range. $13 per gallon actually wasn’t a bad price, either. Small amounts of a new product are always bound to be more expensive than the plentiful stores of the established alternative. In fact, it was about half of what the Navy had paid for biofuels just a few years prior. But Republicans on the Hill — sick of the brush-off from Mabus and sensing political opportunity in Solyndra’s wake — pounced.

In early May, the Republican-controlled House Armed Services Committee voted to ban the purchase of any alternative fuels that cost more than petroleum; that’s a bar biofuels may never reach. But the hostility to the Navy effort is bipartisan. Later in the month, the Democratic-controlled Senate Armed Services Committee went even further, blocking the Defense Department from helping build biofuel refineries unless “specifically authorized by law.” Of course, such an authorization will never come, if the measure’s sponsors have their way.

The politics had swung so far away from Mabus that one-time green tech supporters were now lashing out at the biofuel program. During the 2008 election, Sen. John McCain pushed his plan to “in five years become oil independent,” modeled after the U.S. military’s project to build the atomic bomb. In May, McCain told National Journal Daily that “adopting a ‘green agenda’ for national defense of course is a terrible misplacement of priorities.”

Even within the Pentagon, doubts about the program crept in. Top Defense Department officials, ordinarily supportive of green tech efforts, rolled their eyes when I asked about the Navy’s biofuel push. ”We’re not in the fuel production business. We’re not into scaling up new new fuels,” says Kevin Geiss, a former computational chemist now serving as the Air Force’s Deputy Assistant Secretary for Energy.

Sure, the Pentagon has a track record of financing the growth of high-tech, high-risk ventures, from microchips to GPS. “But they were all in niche markets at the time; who needed stealth in the early ’70s but us?” Geiss adds. ”The challenge with petroleum fuels is that it’s a commodity. You’re trying to jump into a commodity market.” That’s not a place for the government to be, in Geiss’ opinion. And that’s why the Air Force refused to sign onto the Navy’s biofuel plan.

The Navy’s 900,000 gallons of blended biofuel have been already delivered by the oiler U.S.N.S. Henry J. Kaiser to the ships and jets of the U.S.S. Nimitz carrier strike group, sitting off of the Hawaiian coast. The Great Green Fleet demonstration will go as as planned. The next move after that, however, is unclear. The Navy is investigating new kinds of biofuels, in an attempt to bring down the costs. At least one of the senators on the Armed Services Committee is expressing regret over the vote. But if the measures passed by the House and Senate Armed Services Committees become law, the Navy’s biofuel development program as we know it will be over.

Does that mean Mabus’ clean energy push will have all been a waste? Hardly. Even if biofuels go away, the broader focus on fuel and power is paying dividends. The Navy is in the middle of testing out “energy dashboards” that show how a ship is drawing power — and how the engines can be run more efficiently. The Navy estimates a ship will consume three percent less fuel as a result. Electric motors attached to the ship’s engines could save another six percent. In 2010, one Marine company deployed to Afghanistan with prototype solar panels that help cut their generators’ fuel use by nearly 90 percent. The Corps was so happy, it pushed out another 106 of the solar units to the field. “For 236 years, Marines didn’t track our fuel use,” says Col. Bob Charette, who heads the Marines’ Expeditionary Energy Office. “Now we do.”

When Ray Mabus announced his energy push back in that hotel ballroom in 2009, he told the sailors and Marines assembled there that the effort would be as difficult and risk-fraught as a warzone deployment — and to prepare accordingly. “I am not asking you or the Navy or the Marine Corps to do the impossible. I am asking you to let the reach of your imagination match the reach of the United States Navy.”

The mission to revolutionize the military’s fuel consumption — to, in effect, propose a replacement for one of the planet’s most entrenched industries — would have been a longshot under any circumstances. The plan needed to be designed and executed to near-perfection. Because it was anything but, the first voyage of the Great Green Fleet may well be the last.