On December 4, 2014, the House passed a version of the National Defense Authorization Act for Fiscal Year 2015 (“NDAA FY 15”) which is now up for debate in the Senate.  While the original House version of NDAA FY 15 contained a number of provisions relating to the procurement of biofuels, these biofuels provisions were substantially modified in the amended version of the bill that the House passed last week after an agreement was made with the Senate to align the House and Senate versions of the bill.

Summary of the changes

  • Section 314.  Section 314 of the House-passed NDAA FY 15 would require the Secretary of Defense or the Secretary of the military department concerned to submit to the congressional defense committees a business case analysis at least 30 days before entering into a contract for the “planning, design, refurbishing, or construction of a biofuel refinery, or of any other facility or infrastructure used to refine biofuels.”  The prior version of this provision in the House bill — Section 317 — would have required the Department of Defense to obtain congressional authorization before entering into such a contract, and drew criticism from the Obama Administration which stated  that such a provision “would inhibit the development of a diverse, cost-competitive energy supply that enhances American energy security.”  The Senate committee-reported bill had contained no similar provision.  As such, the original House version of the provision appears to have been softened by dropping the requirement for congressional authorization after negotiations with the Senate.   
  • Section 316.  Section 316 of the House-passed bill would prohibit the DOD from using funds allocated to it for FY 15 to make bulk purchases of drop-in fuel for operational purposes, unless the fully burdened cost of that drop-in fuel is cost-competitive with the fully-burdened cost of traditional fuel available for the same purpose, subject to a national security waiver.  “Drop in fuel” is a type of alternative hydrocarbon fuel that is designed as a direct replacement for, and is chemically indistinguishable from, traditional fuels such as gasoline, diesel, or jet fuels, and is derived from biomass feedstocks such as algae.  “Fully burdened cost” is defined in the House bill as “the commodity price of the fuel plus the total cost of all personnel and assets required to move and, when necessary, protect the fuel from the point at which the fuel is received from the commercial supplier to the point of use.”  The prior version of the House bill contained no such provision, while the Senate committee-reported bill contained a provision that would prohibit DOD funds from being used for bulk purchases of drop-in fuel for operational purposes, unless the cost of that drop-in fuel was cost-competitive with traditional fuel.  The shift from requiring that the cost of the drop-in fuel be cost-competitive with traditional fuels to requiring that it be cost-competitive with the fully burdened cost of traditional fuel may make it substantially more difficult for the DOD to make purchases of drop-in fuel if it is more difficult and costly for the military to move and store alternative drop-in fuels.
  • Other changes.  The House-passed bill cut out completely former Section 314 — which would have exempted the DOD from the biofuel purchasing requirements of Section 526 of the Energy Independence and Security Act of 2007.  The Obama Administration had argued that the exemption would “undercut[] a law passed with strong bipartisan support that provides an environmentally sound framework for the development of future alternative fuels.”

Impact of the changes

The full practical impact of these changes remains to be seen.  However, it is clear that the removal of the congressional authorization requirement from Section 314 removes a significant obstacle to the military’s construction of biofuel refineries in the future.