Input:
	Introduction

As the debate surrounding health care reform continues, there has been considerable discussion about creating a new, independent entity to determine Medicare policy. Currently, Medicare policy is made largely by Congress and, to varying degrees, the Centers for Medicare and Medicaid Services (CMS). CMS, housed within the Department of Health and Human Services (DHHS), is the federal agency responsible for administering the Medicare, Medicaid, and Children's Health Insurance (CHIP) programs. The proposals being debated would essentially create an independent body of health care experts with the power to make fundamental decisions affecting Medicare.
Advocates of these types of proposals argue that creating an independent, policymaking entity in Medicare is necessary if we hope to achieve any real health care reform. Supporters claim that members of Congress are easily influenced by special interests and lobbyists when making Medicare policy decisions, particularly those related to provider reimbursement. As a result, some of the decisions that are made may not be fiscally sustainable or in the best interest of beneficiaries. Advocates also contend that lawmakers do not have the necessary technical or operational expertise required to govern a program as complex as Medicare. Every year lawmakers, many of whom have limited experience in health care financing or delivery, make detailed operational decisions related to Medicare's provider payment systems. The perception, at least by some, is that an independent body of experts, insulated from politics, would produce more fiscally responsible and efficient policy decisions.
Opponents of these proposals express concern about reducing Congress's role in the policymaking and oversight process. The proposals being discussed would establish a new policymaking body with the authority to make changes in the program without congressional approval. By delegating certain lawmaking functions to an independent entity, Congress would be ceding some of its oversight responsibilities. For example, today, when it examines the merits of a particular policy, Congress can hold hearings and debates, both of which are open to the public. Although these proposals include certain oversight mechanisms, such as annual reports and studies, the day-to-day deliberations of the new entity or council would not necessarily be available to the public.
On June 25, 2009, Senator Jay Rockefeller introduced S. 1380 , the Medicare Payment Advisory Commission (MedPAC) Reform Act of 2009, which would elevate MedPAC, a congressional advisory commission, to an executive branch agency with the authority to determine Medicare payment and coverage policies. The Obama administration submitted a similar proposal to Congress, titled the Independent Medicare Advisory Council Act (IMAC) of 2009, on July 17, 2009. The Administration's proposal would create an independent five-member executive council charged with issuing recommendations on Medicare payment policy to the President. Finally, the Senate Finance Committee included a provision to establish an independent Medicare advisory board in its health reform legislation, the Patient Protection and Affordable Care Act ( H.R. 3590 ), which passed the Senate on December 24, 2009. Although different in structure and scope, all of these proposals would alter the role Congress has traditionally played in the Medicare policymaking process.
This report introduces readers to the concept of creating an independent, policymaking entity in Medicare. The report begins with a discussion of the types of policymaking entities that have been proposed in the current health care reform debate, as well as in Medicare. The report then provides an overview of the role that Congress and CMS play in determining Medicare policy. The report concludes with a comparison of some of the key features of S. 1380 , the Administration's draft IMAC proposal, and H.R. 3590 .

	Background

The current health care reform debate has included discussions about creating new independent entities to conduct certain administrative and policymaking functions in the health care system. In addition to proposals to establish this type of entity in Medicare, the concept has been offered as a tool for performing research on comparative effectiveness, managing the private health insurance market, making payment and coverage decisions, and proposing broader reforms to the health care system. At least one of the rationales for creating independent entities with policymaking authority is the assumption that, because these organizations are insulated from both the congressional and executive decision-making processes, they can make better policy decisions.
Independent entities typically share certain characteristics. First, they are usually governed by boards or commissions composed of members who are appointed by the President and confirmed by the Senate. Representatives are usually appointed for long, fixed terms to reduce the likelihood that they will be influenced by either the White House or congressional politics. Additionally, terms are usually staggered to ensure that not all of the members are appointed during one presidential administration. Other features associated with independence include requiring the President to consider political orientation when appointing members and mandating that the membership represent a diverse mix of professional experience or expertise.
One prominent model of an independent health care entity discussed throughout the current reform debate is the Federal Health Board. Endorsed by former Senator Tom Daschle, a Federal Health Board would be modeled after the Federal Reserve Board and have broad authority over private and public health care programs. The Federal Reserve, which establishes the nation's monetary policy, is composed of a national Board of Governors consisting of seven members and 12 regional banks. The Board of Governors has significant authority to oversee and regulate the banking system. As envisioned by Daschle and others, a Federal Health Board would play a substantial role in making benefit and coverage recommendations, regulating the private health insurance market, conducting research, and improving the quality of care.
Some of the other models that have been discussed are more modest in scope. For example, in addition to including a provision establishing a Medicare advisory board, H.R. 3590 would establish a private, non-profit corporation titled the Patient-Centered Outcomes Research Institute to conduct comparative clinical effectiveness research. The corporation, which would be overseen by a Board of Governors composed of 17 members appointed by the Comptroller General, would be charged with identifying national priorities for performing comparative effectiveness research and contracting with public and private organizations to conduct such research. Another proposal would create an organization or entity to oversee the market for private health insurance. These entities, which are referred to as health insurance exchanges, would be responsible for establishing and enforcing standards for private health plans related to benefits, coverage, enrollment, and beneficiary cost-sharing.
Proposals to establish an independent entity in Medicare also vary in scope and structure. Some measures would create an independent commission, board, or entity with the authority to determine specific Medicare policies, particularly those related to provider reimbursement and benefit coverage. Others would create a governance structure with a broader scope of authority. For example, in a recent paper for the New America Foundation on reforming Medicare's governance, certain health experts advocate creating a new independent board called the Medicare Guardians. Under this proposal, the Medicare Guardians would function like a board of directors for Medicare with broad authority to enact policies directed at restructuring how the program pays for and delivers health care.
Congress has debated the merits of creating a new administrative entity in Medicare several times throughout the program's history, most recently in the Medicare reform discussions of 2000 and 2001. At that time, Congress was considering adding a new prescription drug benefit to the program and exploring options to foster competition among private Medicare plans. However, there were concerns that CMS (at that time the Health Care Financing Administration, or HCFA), already overwhelmed with new responsibilities, would not be able to manage an increase in its workload. Various reform proposals recommended a number of solutions to rectify the agency's management problems, including expanding its authority to perform its responsibilities, increasing the agency's annual budget, creating separate agencies to administer parts of the program, and establishing a Medicare Board to manage competition among private plans and traditional Medicare.

	Overview of the Medicare Policymaking Process

Currently, Medicare policy is determined largely by Congress and the three congressional committees that have jurisdiction over the program: the House Committee on Ways and Means, the House Committee on Energy and Commerce, and the Senate Committee on Finance. These committees regularly propose and draft legislation to modify all aspects of the Medicare program, including payment policy, benefits, coverage, and program administration. In some areas, Congress has created legislative language that is very detailed and prescriptive. For example, policymakers have established sophisticated payment systems and methodologies for reimbursing providers participating in Medicare Parts A and B. Congress has also mandated specific criteria for benefit coverage (i.e., beneficiary co-insurance and cost sharing amounts, day limits on coverage, and patient eligibility requirements).
In other areas, congressional involvement in Medicare policy is less developed. For example, although Congress has outlined broad benefit categories for Medicare coverage in Title XVIII of the Social Security Act (SSA), it has given CMS substantial discretion and flexibility to make individual coverage determinations. CMS executes this authority by implementing both national and local coverage determinations, otherwise known as NCDs and LCDs. NCDs and LCDs grant, limit, or exclude Medicare coverage for a specific medical service, procedure, or device. To date, CMS has issued approximately 308 NCDs. The vast majority of Medicare coverage decisions, however, are LCDs, which are made at the local level by private contractors.
To assist with its policymaking efforts, Congress relies on the analytic and research support of its legislative branch agencies: the Congressional Budget Office (CBO), the Congressional Research Service (CRS), the Government Accountability Office (GAO), and the 17-member Medicare Payment Advisory Commission, otherwise known as MedPAC. Congress established MedPAC with the Balanced Budget Act of 1997 ( P.L. 105-33 ). Specifically, Congress charged the commission with reviewing and making recommendations to Congress regarding Medicare payment policies, including payments to private Medicare+Choice health plans (now called Medicare Advantage plans).
The statute also requires the commission to examine other issues affecting the Medicare program, such as changes in the health care delivery system, changes in the market for health care services, Medicare payment policies and their relationship to quality and access, and factors affecting the efficient delivery of health care services in different sectors (e.g., hospitals, skilled nursing facilities).
The commission issues the majority of its policy recommendations through two annual reports to Congress: a March report on Medicare payment policy and a June report on other policy issues affecting the Medicare program. The types of recommendations range from broad, long-term policies such as implementing pay for performance and quality measurement programs to detailed payment update recommendations for Medicare's fee-for-service (FFS) providers. When formulating its recommendations, the commission takes into account the adequacy of current provider payments and the efficiency of providers. For example, in its March 2009 report, the commission recommended eliminating or reducing payment updates for skilled nursing facilities, home health services, and inpatient rehabilitation facilities in FY2010. The commission also testifies regularly for various congressional committees on its findings and recommendations.
In establishing MedPAC, Congress merged two previous Medicare advisory commissions: the Prospective Payment Assessment Commission (ProPAC) and the Physician Payment Review Commission (PPRC). Congress created ProPAC in 1983 to provide guidance on implementing the hospital prospective payment system and the PPRC in 1985 to make recommendations to Congress on reforming Medicare's physician payment system. ProPAC and PPRC were established, at least in part, because Congress had become increasingly distrustful of the executive branch and HCFA. By creating an independent advisory body to assist lawmakers in their policymaking efforts, Congress was able to obtain its own source of objective expertise on Medicare payment policy and buffer members of Congress from pressures from interest groups.
MedPAC, like its predecessor agencies, does not have the authority to actually implement its recommendations without congressional approval or regulatory action by CMS. Although the actual number of MedPAC recommendations implemented by Congress is difficult to measure, the perception is that the commission has been relatively influential in shaping Medicare policy. According to the commission's FY2010 budget request, MedPAC assesses its impact on the policymaking process by publicly reporting its outputs (e.g., number of requests for information from Congress, number of policy briefs published, and number of testimonies) and qualitatively describing the outcomes of its recommendations.

	Characteristics of Proposals to Establish an Independent Entity in Medicare

On June 25, 2009, Senator Rockefeller introduced S. 1380 , the Medicare Payment Advisory Commission (MedPAC) Reform Act of 2009. S. 1380 would establish the MedPAC as an executive branch agency with broad policymaking authority in the areas of Medicare payment and coverage. July 17, 2009, the President submitted a draft proposal to Congress titled the Independent Medicare Advisory Council Act of 2009, otherwise known as the IMAC proposal. The IMAC proposal would establish a five-member council to advise the President on Medicare payment rates for certain providers. Although the proposal provides the council with the authority to recommend broader policy reforms, its authority outside of Medicare payment policy would be limited. Finally, the Senate Finance Committee included a provision (Sec. 3403) to establish an independent Medicare advisory board in its health reform legislation, the Patient Protection and Affordable Care Act ( H.R. 3590 ). Under this option, an independent board would be required to develop and submit detailed proposals to Congress and the President to reduce Medicare spending. In the sections that follow, more detailed information comparing these proposals across key categories such as membership, scope of authority, presidential and congressional review procedures, cost control mechanisms, and funding are presented. See Table 1 for highlights from these sections.

		Membership

All three proposals would create an independent entity composed of members appointed by the President, with the advice and consent of the Senate. S. 1380 , however, would replace the current 17-member MedPAC advisory commission with an 11-member executive commission, essentially elevating MedPAC to an executive branch agency. This is in contrast to the Administration's proposal that would create a new five-member executive council, and H.R. 3590 , which would establish a new 15-member independent Medicare advisory board.
Members would serve staggered six-year terms in S. 1380 and H.R. 3590 , and five-year terms under the Administration's proposal. Under all three options, the President, with the advice and consent of the Senate, would appoint a Chair for the entity from among its members. H.R. 3590 includes an additional requirement that the Senate Majority Leader, Speaker of the House, Senate Minority Leader, and House Minority Leader each present three recommendations for appointees to the President for his consideration. The Secretary, the Administrator of CMS, and the Administrator of the Health Resources and Services Administration (HRSA) would serve as ex-officio, non-voting members of the Board.
For the entities that would be established by S. 1380 and H.R. 3590 , qualifications for membership would be the same or similar to those currently authorized for MedPAC. The only qualifications for membership stipulated in the Administration's proposal are that appointees be physicians or have specialized expertise in medicine or health care policy.

		Scope of Authority

All three proposals would provide a new independent entity with the explicit authority to make decisions related to provider payment. S. 1380 , however, is the only proposal to provide the Commission with the authority to make Medicare coverage decisions. Under all three proposals, CMS would retain its responsibility for issuing regulations to implement the entity's recommendations.
S. 1380 would elevate MedPAC from a legislative advisory body to an executive branch agency and provide the new commission with broad authority in the areas of Medicare payment and coverage. The Commission would be responsible for developing payment policies, methodologies, and reimbursement rates (including payment updates) for all Medicare providers and suppliers. The Commission would also be responsible for developing Medicare coverage policy, a function currently executed by CMS and its private contractors. To assist in its policymaking functions, S. 1380 requires that the Commission establish three advisory councils: a Council of Health and Economic Advisors, a Consumer Advisory Council, and a Federal Health Advisory Council.
The Administration's proposal would establish a separate independent entity with a narrower scope of authority. The IMAC's primary responsibility would be recommending annual payment updates for certain Medicare providers. Although the proposal provides the Council with the authority to recommend broader Medicare reforms, the legislation specifies many exceptions to this authority. Among these are recommendations relating to Medicare financing, capital payments to inpatient hospitals, certain Medicare administrative activities such as claims processing and fraud control, conditions of participation, and physician and hospital quality reporting. The proposal does not explicitly exclude Medicare coverage policy from the Council's jurisdiction.
The Independent Medicare Advisory Board established by H.R. 3590 would have the authority to develop and submit recommendations, in certain years, to Congress and the President to reduce Medicare spending. The provision lays out specific criteria for the Board to meet when making its recommendations. For example, when developing and submitting proposals, the Board would be required to develop recommendations that would reduce spending in Medicare Parts C and D; prioritize recommendations that would extend Medicare solvency; improve the health care delivery system and health outcomes by promoting integrated care, care coordination, prevention, wellness, and quality improvement; protect beneficiary access to care (including in rural and frontier areas); and consider the effects of changes in provider and supplier payments on beneficiaries.
H.R. 3590 also clearly exempts certain areas from the Board's authority. Specifically, the Board would be prohibited from making recommendations that would ration care, raise revenues, increase beneficiary premiums, increase beneficiary cost-sharing, restrict benefits, or modify eligibility. Additionally, prior to 2020, the Board could not make any recommendation that would reduce payments to providers and suppliers scheduled to receive a reduction in their payment updates in excess of a reduction due to productivity (i.e., hospitals and physicians).

		Presidential Review Procedures

The Administration's proposal is the only proposal of the three that requires explicit presidential approval or disapproval of the Council's recommendations. Specifically, the Administration's proposal would require that the Council submit two annual reports to the President containing its recommendations for payment updates to Medicare providers. The President would have 30 days to approve or disapprove of the Council's report in its entirety. The President would not have the authority to disapprove individual recommendations.
H.R. 3590 requires the transmission of the Independent Medicare Advisory Board's proposals to the President but does not stipulate specific procedures for the President to review and comment on the Board's recommendations. However, the Board would be required to submit a copy of the proposal to the Secretary for the Secretary's review and comment. Further, if the Board fails to submit a proposal to the President and Congress by January 15, the Secretary would be required to submit a contingent proposal, meeting the same fiscal policy requirements.

		Congressional Review Procedures

Under all three options, the Commission or Board's recommendations would automatically go into effect without congressional action. Congress would need to pass legislation that would either supersede the entity's recommendations or block their implementation. Each proposal specifies different procedures for Congress to follow to initiate this process. For example, under S. 1380 , Congress would need a three-fifths majority in the House or Senate (67 in the Senate or 290 in the House) to consider a measure that would overrule a payment or coverage determination made by the Commission.
To prevent the implementation of recommendations proposed by the IMAC, the Administration's proposal would require that Congress enact a joint resolution of disapproval within 30 days from the date the President approves the Council's recommendations. All joint resolutions of disapproval are required to be approved and signed by the President. Given that the IMAC proposal would require presidential approval of the Council's recommendations, it is unlikely that the President would then approve a congressional resolution to nullify those recommendations. To prevent the proposal from becoming law, Congress would then need two-thirds majorities in both Houses of Congress to override the President's veto of the resolution.
H.R. 3590 is the only proposal that includes expedited or "fast track" procedures for congressional consideration of the Board's recommendations. Expedited procedures help ensure that Congress take action on particular legislation that might otherwise never make it out of committee. Under this option, the Board would be required to submit its annual recommendations to Congress and the President by January 15. By April 1, the Senate Finance Committee, the Committee on Ways and Means, and the Committee on Energy and Commerce would be required to report out either the Board's proposal or an amended version of the proposal or be discharged from further consideration of the proposal. If Congress does not enact legislation that supersedes the Board's proposal by August 15, the Secretary would be required to automatically implement the Board's proposal, subject to certain conditions. To discontinue the automatic implementation of the Board's recommendations beyond 2019, Congress would have to pass a joint resolution of disapproval no later than August 15, 2017.

		Timeline for Recommendations

S. 1380 would require that the Commission propose its first set of payment recommendations by December 1, 2012, for implementation beginning in 2013. Under the Administration's proposal and H.R. 3590 , the first set of recommendations would be required in 2014 for implementation in 2015.

		Cost Control Mechanisms

All proposals contain mechanisms designed to control spending in the Medicare program. Under S. 1380 , the new MedPAC Commission would be required to reduce Medicare expenditures by at least 1.5% annually. If the Chief Actuary of CMS concludes that the Commission's policies would not reduce expenditures by this amount, the Secretary would be required to implement an automatic reduction in payment to Medicare providers and suppliers to achieve the 1.5% savings, subject to certain requirements.
H.R. 3590 specifies annual savings targets that the Board would be required to meet. Specifically, the Board would be required to develop recommendations that would reduce projected Medicare spending by the lesser of 0.5 percentage points in 2015, 1.0 percentage points in 2016, 1.25 percentage points in 2017, and 1.5 percentage points in years 2018 and beyond, and the amount by which the rate of growth in Medicare spending exceeds a rate of inflation (as defined in statute). The bill also includes a budget neutrality provision. The Board's recommendations could not increase Medicare expenditures, over the next 10-year period, over and above what they would have been without the recommendations. In its estimate of the Patient Protection and Affordable Care Act released on December 19, the Congressional Budget Office (CBO) predicted that the provision would reduce Medicare spending by $28.2 billion between years 2015-2019, taking into account reductions anticipated for other provisions in the legislation.
The Administration's proposal also includes a 10-year budget neutrality provision. Proposals that did not meet this budget neutrality requirement could not be implemented. The CBO analysis of the President's IMAC proposal estimated minor savings from the proposal, $2 billion in savings over 2010-2019 with all of the savings realized in fiscal years 2016 through 2019. To achieve larger savings, the agency recommended including explicit targets for reductions in spending, similar to S. 1380 and H.R. 3590 , as well as providing the Council with broader authority to make other changes in the program.

		Funding for Activities

Both S. 1380 and the Administration's proposal would authorize funding, in such sums as necessary, for the Commission or Council's activities. Sixty percent of the appropriation would be payable from the Medicare Part A Trust Fund and 40% from the Part B Trust Fund. H.R. 3590 would appropriate $15 million for the Board's activities beginning in 2012. This amount would increase by the rate of inflation annually thereafter.

	Concluding Observations

In the current health care reform debate, the idea of creating an independent, policymaking entity in Medicare has gained prominence. This report illustrates some of the key characteristics for three of the legislative options that have been proposed. Although not a new concept, the idea of creating an independent commission or governing entity in Medicare has garnered attention in recent months because it is perceived as a viable approach for containing health care spending. However, as this comparison demonstrates, determining the appropriate size, scope of authority, cost control mechanisms, and level of independence for a new policymaking body presents challenges for lawmakers and health care experts. As policymakers continue to debate options for health reform, examining and assessing the various approaches for creating these types of entities will become increasingly important.

Output:
Current health care reform discussions have included debates about the merits of creating an independent entity in Medicare to make changes in the program. Currently, Medicare policy is made largely by Congress and, to varying degrees, the Centers for Medicare and Medicaid Services (CMS), the federal agency responsible for administering the program. The proposals being debated would essentially create an independent body of experts with the power to set provider payment rates and make other Medicare policy decisions.
Advocates of these types of proposals argue that creating a new independent entity or governance structure in Medicare is necessary if we hope to achieve any real health care reform, particularly reductions in overall spending. According to supporters, members of Congress are easily influenced by special interests and lobbyists when developing Medicare policies, particularly those related to provider reimbursement. As a result, some of the decisions that are made may not be fiscally sustainable or in the best interest of beneficiaries. Additionally, proponents argue that members do not have the technical expertise or professional experience required to manage a health insurance program as complex as Medicare. They contend that the public would be better served by having independent experts, insulated from political pressures, responsible for making Medicare policy.
Opponents of these proposals express concern about reducing Congress's role in the Medicare policymaking and oversight process. Under the proposals being discussed, recommendations made by the new commission or decision-making entity would automatically become law without congressional action. Critics contend that giving too much power to an entity composed of unelected officials would reduce its accountability to Congress and the public.
Over the past year, several proposals have been introduced by Congress to create a new administrative or governing structure in Medicare. On June 25, 2009, Senator Jay Rockefeller introduced S. 1380, the Medicare Payment Advisory Commission (MedPAC) Reform Act of 2009, which would elevate MedPAC, a congressional advisory commission, to an executive branch agency. The Obama Administration submitted a similar proposal to Congress titled the Independent Medicare Advisory Council Act (IMAC) on July 17, 2009. The Administration's draft proposal would create an independent five-member executive council to make recommendations to the President. Finally, the Senate Finance Committee included a provision establishing an independent Medicare advisory board in its health reform legislation, the Patient Protection and Affordable Care Act (H.R. 3590), which passed the Senate on December 24, 2009. All proposals would transfer certain Medicare oversight and decision-making responsibilities to an independent, policymaking entity.
This report introduces readers to the concept of creating an independent, policymaking entity in Medicare. The report begins with a discussion of the types of policymaking entities that have been proposed in the current health care reform debate, as well as in Medicare. The report then provides an overview of the role that Congress and CMS play in determining Medicare policy. The report concludes with a comparison of some of the key features of S. 1380, the Administration's draft IMAC proposal, and H.R. 3590.


Input:
	Background

		Types of Fuel Used in Military Operations

Military operations generally rely on petroleum-based fuels that power  communication equipment, forward deployed bases, tactical and combat  ground vehicles, aircraft, naval vessels, and other platforms. For military  operations, DOD primarily uses jet and naval distillate fuels. With regard  to jet fuel, until recently DOD predominately used two types: Jet  Propellant-8 and Jet Propellant-5. Jet Propellant-8 is the primary fuel  used in DOD land-based aircraft, tactical and combat ground vehicles,  and ground support equipment. Aircraft, ground vehicles, and support  equipment deployed aboard maritime vessels (such as aircraft carriers)  use Jet Propellant-5 since this jet fuel—which is stored in large  quantities—is less combustible than other types of jet fuel, which is  important for fire safety reasons. The standards for these two fuels are  listed in the DOD technical fuel specification documents maintained by  the Departments of the Air Force and Navy, respectively, and approved  for use by all DOD departments and agencies. Jet Propellant-8 fuel is  similar to commercial jet fuels—known as Jet A and Jet-A-1. The  standards for these fuels are listed in the technical fuel specification  document issued by ASTM International. As of the end of calendar year  2014, DOD reported completing conversion from Jet Propellant-8 fuel to  Jet A—with the inclusion of specific additives for military unique  requirements—at military installations within the United States. DOD uses  naval distillate fuel, known as F-76, to power nonnuclear ships. This fuel  can be burned in shipboard boilers, diesel engines and gas turbines. The  standards for this fuel are listed in the DOD technical fuel specification  document maintained by the Department of the Navy. Unlike the case of  jet fuel, according to DOD officials, there is no commercial equivalent that  meets the Navy’s maritime needs.

		DOD Guidance on Alternative Fuels

DOD Directive 4180.01, DOD Energy Policy, among other things,  establishes that DOD will diversify and expand its energy supplies and  sources, including alternative fuels.responsibilities for various matters, including the following:
The Assistant Secretary of Defense for Operational Energy Plans and  Programs for development, certification, qualification, field demonstration, and  ongoing purchases of alternative fuels for operational platforms in  accordance with the U.S. Code;   is to develop policy and guidelines and provide oversight
The Director, Defense Logistics Agency is to (1) manage energy  commodities and related services to support the qualification of alternative fuels and support field  demonstration activities; and  ; and (2) provide energy expertise
The Secretaries of the military departments are to develop and  implement doctrine, guidance, and strategies consistent with the  directive and implementing instructions.
This position was recently merged with the former Deputy Under Secretary of Defense  (Installations & Environment) position to create the Assistant Secretary of Defense for  Energy, Installations, and Environment. See Carl Levin and Howard P. “Buck” McKeon  National Defense Authorization Act for Fiscal Year 2015, Pub. L. No. 113-291, § 901(f)  (2014) (amending 10 U.S.C. § 138(b)(9)). Many of the responsibilities of the Assistant  Secretary of Defense for Operational Energy Plans and Programs were transferred from  section 138c of Title 10, U.S. Code, to section 2926. See id. § 901(g).
This responsibility is to be carried out in accordance with Department of Defense  Directive 4140.25, DOD Management Policy for Energy Commodities and Related  Services (Apr. 12, 2004). This directive was reissued as Department of Defense  Instruction 4140.25 on June 25, 2015. alternative fuels are obtained using the DOD’s standard fuel alternative fuels for operational purposes are purchased when cost- competitive with traditional fuels and when qualified as compatible  with existing equipment and infrastructure; and  fuel systems are qualified to use available commercial-type fuels,  including alternative fuels.
DOD’s Alternative Fuels Policy for Operational Platforms lists the  department’s primary alternative fuels goal as, among other things,  furthering flexibility of military operations through the ability to use  multiple, reliable fuel sources. for the department’s investment in alternative fuels, to include: increasing  DOD’s resilience against strategic supply disruptions, reducing the effect  of petroleum price volatility, and increasing fuel options for operational  commanders. This policy indicates alternative fuels can serve as a  mechanism for mitigating anti-access/area denial effects, and for enabling  flexibility in supply chain logistics. The policy stresses that the desired  end-state of investments in alternative fuels is operational military  readiness and battlespace effectiveness.
Additionally, it articulates considerations  DOD’s Operational Energy Strategy and related Operational Energy  Implementation Plan identify the high-level goal of expanding DOD’s  operational energy supply options. Promoting the development of  alternative fuels—in the form of testing and approving them for use by  existing military platforms, and helping to catalyze a competitive biofuels  industry—constitutes one means for achieving this goal.
Department of Defense Alternative Fuels Policy for Operational Platforms (July 5,  2012).
Each of the three military departments has energy guidance documents  that address alternative energy or alternative fuels. Two of DOD’s  military departments—the Navy and the Air Force—have also established  usage goals for alternative fuels. The Department of the Navy’s guidance  sets a goal of deriving 50 percent of total energy consumption from  alternative sources—including alternative fuels—by 2020, which,  according to Navy estimates, would require using about 336 million  gallons of alternative fuels (both naval distillate and jet fuels) annually by  2020. In addition to setting quantitative goals, the guidance established a  goal of demonstrating (which the Department of the Navy completed in  July 2012) and deploying (by 2016) the Great Green Fleet—that is, ships  and aircraft fueled by alternative fuels and other alternative energy  sources or utilizing other energy conservation measures. The  Department of the Air Force’s guidance includes a goal of increasing, to  50 percent of total consumption, the use of cost-competitive drop-in  alternative jet fuel blends for non-contingency operations by 2025.  Although the Department of the Army uses jet fuel in its tactical and  combat ground vehicles, aircraft, and other ground support equipment  (such as generators) and engages in efforts to test and approve  alternative jet fuel for use in these platforms, the Army does not have  specific alternative fuel usage goals in its energy guidance. For additional  details about each military department’s guidance as related to alternative  fuels, see appendix I.

		GAO’s Prior Work

) Strategy (May 1, 2015). select federal agencies—including DOD—to sponsor research that  specifically targets alternative jet fuel development or provide direct  support for its future commercial production, or both. For example, we  described multiple non-DOD research and development projects that  provide federal support for helping to develop technologies and  processes necessary for the commercial production of biofuels.  Regarding DOD, we noted DOD’s activities to test and approve  alternative jet fuel, in particular. In addition, we underscored that while  federal government activities help to address the main challenge of  alternative jet fuel’s price-competitiveness, it is market factors that affect  the long-term commercial viability of alternative jet fuels.

		Defense Production Act

The Defense Production Act (DPA) generally provides the authority to,  among other things, expedite and expand the supply of critical resources  from the U.S. industrial base to support the national defense. Title III of  the Act—Expansion of Productive Capacity and Supply—allows military  and civilian agencies to provide a variety of financial incentives to  domestic firms to invest in production capabilities, so as to ensure that the  domestic industrial and technological base is capable of meeting the  national defense needs of the United States.Title III authorizes the president to provide for the following in order to  create, maintain, protect, expand, or restore domestic industrial base  capabilities essential for the national defense: purchases of or commitments to purchase an industrial resource or encouragement of exploration, development, and mining of critical  and strategic materials, and other materials; development of production capabilities; and increased use of emerging technologies in security program  applications and rapid transition of emerging technologies.
Use of the authorities is subject to conditions and requirements  established by statute. For example, prior to using the above DPA  authorities, the president must determine that the industrial resource,  material, or critical technology item is essential to the national defense,  that U.S. industry cannot reasonably be expected to provide the capability  in a timely manner, and that purchases, purchase commitments, or other  actions are the most cost effective, expedient, and practical alternative  method for meeting the need. According to DOD officials, the focus of  Title III is to establish commercially viable industrial capabilities that will  continue to prosper after federal government assistance ends.
The DPA fund manager is the Secretary of Defense. Within DOD, the  Under Secretary of Defense for Acquisition, Technology, and Logistics  provides guidance to implement the DPA and monitors the Title III  program. III program and maintains a program office to manage and administer  aspects of individual Title III projects. Program Office activities include  conducting market research and analysis when assessing potential Title  III projects; monitoring the technical and business performance of firms  receiving Title III financial incentives; and overseeing aspects of  contracting for Title III projects.
See Department of Defense Directive 4400.01E, Defense Production Act Programs,  paras. 4.1.2, 4.1.10 (Oct. 12, 2001) (certified as current as of Sept. 14, 2007). According  to DOD, the Under Secretary of Defense for Acquisition, Technology, and Logistics is  assisted by the Deputy Assistant Secretary of Defense (Manufacturing & Industrial Base  Policy) and the Program Director of the Defense Production Act Title III Program.

	DOD Purchases Alternative Fuels to Test and Validate that the Fuel Can Meet Safety, Performance, and Reliability Standards

		DOD Has Purchased Small Quantities of Alternative Fuels

DOD has purchased small quantities of alternative fuels for research,  development, and demonstration purposes but not large quantities for  military operations yet. DOD’s energy and alternative fuels guidance  discusses the research and development aspects of alternative fuels—to  include testing and approving fuels, as well as demonstrating their use in  an operational environment—and DOD’s Operational Energy Strategy  lists conditions for investment in the research, development, testing, and  evaluation of alternative fuels. The guidance notes that DOD is currently  purchasing alternative fuels for testing purposes, at a premium price— that is, prices higher than those for conventional fuels. The marginal unit  cost of producing a commodity at small scale with new processes being  researched and developed is typically much higher than the cost of  producing the same or similar commodities using existing large-scale  commercial production facilities.
The military departments purchased about 2.0 million gallons of  alternative jet and naval distillate fuels from fiscal years 2007 through  2014 to conduct the department’s testing, approving, and demonstration  activities, at a total cost of about $58.6 million (adjusted for inflation to  fiscal year 2015 dollars using the gross domestic product price index).  This total amount includes about 450,000 gallons for the Department of  the Navy’s July 2012 Great Green Fleet demonstration with a group of  ships and aircraft fueled by alternative fuels in an operational environment  that was part of a larger, biennial multinational maritime exercise, known  as the Rim of the Pacific exercise.funding sources for the quantities of alternative fuels purchased include  each military department’s Research, Development, Test, and Evaluation  funds and the Department of the Navy’s Operations and Maintenance  funds—for the Great Green Fleet demonstration—as well as other funds  that DOD identified as being associated with the American Recovery and  Reinvestment Act of 2009.
According to DOD officials, the  By contrast, over the same period of time, the military departments  purchased approximately 32.0 billion gallons of jet and naval distillate  conventional petroleum fuel at a total cost of about $107.2 billion  (adjusted for inflation to fiscal year 2015 dollars using the gross domestic  product price index). Figure 1 shows the total quantities and costs of the military departments’ jet and naval distillate alternative and conventional  petroleum fuels purchases from fiscal years 2007 through 2014. For more  details on the quantity and cost of the military departments’ jet and naval  distillate alternative and conventional petroleum fuels purchases by each  fiscal year, see appendix II.

		DOD’s Testing Process Validates Whether Alternative Fuels Can Meet Safety, Performance, and Reliability Standards of Military Equipment and Platforms

Before any alternative fuel can be used in military operations, DOD tests  the fuel to validate whether it can meet unique safety, performance, and  reliability standards of military equipment and platforms. These standards  reflect the disparate environments in which the military operates—from  extreme cold weather to desert geography—and the different types of  functionality present in military equipment and platforms—such as flying  at high altitudes for military reconnaissance purposes or the afterburner  thrust augmentation in military aircraft engines. Two examples of fuel  properties important to these standards include a liquid fuel’s flash  point—the temperature at which existing vapors will combust, or ignite— and its freeze point—the temperature at which it freezes, which affects  how it behaves at low temperatures. Jet fuel (specifically Jet Propellant-5)  used on military ships is required to have a substantially higher flash point  than other jet fuels for safety reasons, since this fuel is stored in large  quantities on aircraft carriers and other vessels. A liquid fuel’s freezing  point potentially can have an effect on certain long-range, high-altitude  missions during which extreme cold temperatures are encountered.  Requirements for alternative fuels are set out in the relevant DOD  technical fuel specification documents. For more details about fuel  properties, see appendix III.
The Departments of the Navy, Air Force, and Army test alternative fuels  to ensure that they can be used in and on tactical and combat ground  vehicles and ground support equipment, ships, aircraft, and fuel  distribution systems. The military departments follow a testing and  approval process that is similar to that used in evaluating whether to  include prospective alternative fuels in the commercial jet fuel standard  issued by ASTM International. captures technical data through laboratory, component, engine, and  weapon system platform tests that evaluate the effects of alternative fuels  on the performance and reliability of military hardware. The chemical  properties of an alternative fuel may be tested in a laboratory using small  quantities of fuel—as little as 500 milliliters. As that fuel progresses  through the testing process, however, fuel quantity requirements  increase. For example, testing alternative fuels in jet engines could  require 60,000 gallons of fuel. For more details about the overall testing  process, see appendix IV.
ASTM International, formerly known as the American Society for Testing and Materials,  develops and delivers international voluntary consensus standards. ASTM Standard  D7566 covers the manufacture of jet fuel containing blends of conventional and  synthesized hydrocarbons (those not derived from petroleum hydrocarbons) for  commercial use.
Departments of the Navy and Air Force. Consequently, according to DOD  officials, they do not duplicate tests previously conducted by another  military department; however, when necessary, a department may  conduct additional tests if there are fuel properties that are specifically  important in certain military applications. In addition, DOD officials stated  that they are streamlining the number of specific tests they conduct as  they gain more expertise with alternative fuels. Other DOD stakeholders  who need to know about fuel issues—such as platform program  managers—review the testing results and share their feedback. Once  these stakeholders concur that test results demonstrate the prospective  alternative fuel meets safety, performance, and reliability expectations  and share their approval, the applicable DOD technical fuel specification  documents are updated.

		DOD Has Approved the Use of Alternative Fuels Made from Two Production Processes and Continues to Test Others

Certain alternative fuels made from the Fischer-Tropsch and  Hydroprocessed Esters and Fatty Acids production processes have been  tested and approved for use in Navy aviation and ship platforms, Air  Force aviation assets, and Army tactical and combat ground vehicles and  ground support equipment, but not yet for Army aviation assets. Under  the previously mentioned DOD technical fuel specification documents,  alternative fuels produced through these two processes are approved for  up to a 50 percent blend with conventional fuel. According to DOD  officials, the alternative fuels made from these production processes that  were used in the testing process included fuels derived from natural gas,  coal, and renewable biomass (such as camelina, algal oil, and tallow)  feedstock sources.
The military departments continue to have some alternative fuel testing  efforts underway. Currently, according to Department of the Army  officials, the testing process for alternative fuels made from the two  production processes discussed above, as well as fuel made from the  Alcohol to Jet production process, for use in Army aviation assets is  complete. Further, they stated that the test results are undergoing  review in order to decide whether to approve the use of these fuels in  Army aviation assets. Also, according to Department of the Army officials,  they plan to complete the testing of alternative fuels made from the  Alcohol to Jet production process for use in tactical and combat ground  vehicles and ground support equipment by the end of calendar year 2015.  They stated they plan to start considering, just for these platforms,  alternative fuels made from the Synthesized Iso-Paraffins and Catalytic  Hydrothermolysis production processes before the end of fiscal year 2015  by purchasing fuel and beginning some testing. According to a Navy  official, the testing for alternative fuel made from the Alcohol to Jet and  Synthesized Iso-Paraffins production processes in aviation platforms is  complete while testing of these fuels in ship platforms is ongoing. In  addition, the Department of the Navy has begun testing alternative fuels  made from the Catalytic Hydrothermolysis and Hydroprocessed  Depolymerized Cellulosic production processes. According to an Air  Force official, beyond updating previously conducted tests of alternative  fuels made from other production processes—such as Alcohol to Jet— there are no ongoing or planned efforts within the Department of the Air  Force to complete additional testing and approval. According to Air Force  officials, if other fuel production processes appear likely to become  commercially viable, the Air Force will revisit resuming its alternative fuel  testing and approval efforts.
As discussed above, DOD recently reported converting from purchasing  military-specification Jet-Propellant 8 jet fuel in the United States to  purchasing commercial-grade jet fuel—Jet A—with specific additives for  military-unique requirements as a means for cost savings and broadening  the fuel provider supply pool. While commercial-grade jet fuels blended  with alternative fuels are not being produced on a commercial scale in the  United States, ASTM International has approved, for commercial aviation,  the use of three types of alternative fuels produced through the (1)  Fischer-Tropsch and Hydroprocessed Esters and Fatty Acids production  processes discussed above for up to a 50 percent blend with  conventional fuel and (2) Synthesized Iso-Paraffins production process  referenced above for up to a 10 percent blend with conventional fuel. In  addition, ASTM International continues to evaluate and consider  approving alternative fuels made from other production processes,  including those cited above for use in commercial aviation. Consequently,  DOD could use alternative fuels in the future via Jet A fuels once those  fuels are available on a commercial scale and a widespread basis in the  fuel marketplace. According to DOD officials, unless DOD continues to  test and approve additional alternative fuels that are being approved by  ASTM International, DOD runs the risk of having to develop a separate  supply chain for jet fuel—in other words, buying a specialty jet fuel  product—as it cannot be assured that commercial-grade jet fuel will meet  military safety, performance, and reliability standards.

	DOD Has a Standard Process to Purchase All Fuels for Military Operations and is Currently Required to Ensure Alternative Fuel Purchases for Operational Purposes Are Cost-Competitive with Conventional Fuels

		DOD Uses a Standard Process to Purchase Large-Scale Volumes of Fuel for Military Operations

DOD has a standard process in place for purchasing large-scale volumes  of fuel, including alternative fuels, for military operations. In support of  DOD’s large-scale fuel program, the Defense Logistics Agency Energy  (DLA-E) activity provides worldwide energy support, including for large- scale fuel purchasing, transportation, and storage for the military and   As depicted in figure 2 below, DLA-E  other government customers.purchases fuel worldwide in large volumes via four major regions:  Inland/East/Gulf Coast/Offshore; Rocky Mountain/West Coast/Offshore;  Atlantic/European/Mediterranean; and Western Pacific. DLA-E considers  two primary factors—technical acceptability and price—when evaluating  fuel vendors’ submitted proposals. The fuel must first meet DOD’s  technical fuel specifications and other technical evaluation factors as part  of the consideration. DOD officials indicated that DLA-E typically awards  multiple 1-year contracts in these purchase programs. Because the price  of energy commodities changes frequently, DOD documents indicate that  DLA-E and DOD establish fuel purchase contracts that are tied to market  price indicators with fixed margins. The fuel is moved through a  commercial distribution system (via tankers, railcars, barges, tank trucks,  and pipelines) to intermediary storage locations for redistribution, or  directly to the end use military customer.
DLA-E utilizes its Defense-wide Working Capital Fund for large-scale fuel  purchases for its military and other government customers. According to  DOD’s Financial Management Regulation, working capital funds were  established to satisfy recurring DOD requirements using a businesslike  buyer-and-seller approach. The fund covers DLA-E’s costs for purchasing large quantities of fuel and is reimbursed through its sale of  the fuel to the military at a standard price. The standard price is also  based on, among other things, an estimate for non-product costs such as  transportation and storage costs. The standard price is intended to  remain unchanged until the next fiscal year. To simplify cost planning and  budgeting, the standard price for a given fuel is the same globally.

		DOD is Currently Required to Consider Whether Alternative Fuels Are Cost- Competitive with Conventional Fuels for Military Operations

As DOD seeks to purchase alternative fuels for military operations, it is  required to consider whether alternative fuels are cost-competitive with  conventional fuels. Under the previously mentioned DOD technical fuel  specifications, fuels produced through the Fischer-Tropsch and  Hydroprocessed Esters and Fatty Acids production processes are  approved to be used in Navy aviation and ship platforms, Air Force  aviation assets, and Army tactical and combat ground vehicles and  ground support equipment but not yet for Army aviation assets for a blend  of up to 50 percent with conventional fuel.  From a technical  requirements perspective, DOD can purchase and use alternative fuels  produced via these approved processes for military operations. However,  in conforming to the law and to departmental guidance, DOD must  currently consider whether alternative fuels are cost-competitive with  conventional fuels. For example, DOD may not obligate or expend funds  made available for fiscal year 2015 to make a large-scale purchase of  alternative fuel for operational purposes unless the fully burdened cost— that is, 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—of that fuel is cost-competitive with the fully burdened cost  of conventional fuel. However, with the requisite notice to the  congressional defense committees, the Secretary of Defense may waive  this limitation and the Secretary is required to notify the congressional  defense committees no later than 30 days before the purchase date if  DOD intends to purchase an alternative fuel for operational use that has a  fully burdened cost that is in excess of 10 percent more than the fully  burdened cost of conventional fuel for the same purpose. A similar  provision was in effect for fiscal year 2014 funds, but it did not reference  the fully burdened cost of fuel, nor was the 10 percent notice requirement  included. DOD guidance also discusses consideration of cost with  regard to alternative fuel purchases for operational purposes, and DOD’s  Operational Energy Strategy indicates that the department will acquire  such fuels for military operations at prices that are competitive with the  market price for conventional fuels. DOD has also recently issued  updated guidance establishing it is DOD’s policy that alternative fuels for  operational purposes are purchased when cost-competitive with  traditional fuels and when qualified as compatible with existing equipment  and infrastructure.
In December 2013, the Secretaries of the Departments of Agriculture and  the Navy announced an initiative, called Farm to Fleet, which is intended  to help the Department of the Navy meet its alternative fuels usage goals.  Related to this initiative, DOD intends to purchase, through its regular  domestic fuel purchases, Jet Propellant 5 jet and naval distillate fuels  meeting DOD’s technical fuel specifications and that are blended with at  least 10 percent but no more than 50 percent alternative fuels— specifically biofuels—for the Department of the Navy’s use in military  operations. The Department of Agriculture plans, under the authority of  the Commodity Credit Corporation Charter Act, to contribute up to       $161 million to alternative fuel purchases to help defray some of the extra  costs—which may include the costs of feedstocks—that would have  caused the final alternative fuel to be more expensive than the price of  conventional fuels for DOD.  To be eligible for the Department of  Agriculture’s Commodity Credit Corporation funding, the specific amounts  per gallon of which are provided in DOD’s fuel solicitation documents, fuel  vendors have to provide an alternative fuel that was produced from an  approved domestic feedstock—such as crop and tree residues,  algae/algal oil, or animal waste and by-products of animal waste.
In the event of a contract award with fuel vendors providing alternative  fuels, the vendors would receive separate payments from the Department  of Agriculture’s Commodity Credit Corporation and DOD. The Department  of Agriculture’s Commodity Credit Corporation would pay the incentive  amount per gallon indicated in the solicitation to the fuel vendors in order  to help them defray some of their costs, including domestic feedstock  costs. DOD would pay the remainder of these alternative fuel vendors’  prices. However, the incentive is not an additional sum paid to a fuel  vendor over and above the price submitted in its proposal, but rather  provides Commodity Credit Corporation funds to cover the portion of the  total submitted price that exceeds the price DOD would otherwise pay. In  no event would fuel vendors providing alternative fuels be paid more than  the price they submitted in their proposals. We note that such an  arrangement means that the cost of the alternative fuel to the federal  government as a whole may be higher than the cost of conventional fuel.  This is because, while DOD would be paying a price that is competitive  with the price of conventional fuel, the Department of Agriculture would be  paying an additional subsidy.
DOD’s first attempt to purchase alternative fuels for military operations,  through its large-scale fuel program, occurred in June 2014, when DOD  issued a solicitation, through its regular domestic large-scale fuel  purchase program for the Inland/East/Gulf Coast/Offshore region of the  United States, for the purchase of Jet Propellant-5 jet and naval distillate  fuels for which blended fuels with between 10 to 50 percent alternative  fuels were to be considered. The solicitation listed the estimated  maximum quantity of Jet Propellant-5 and naval distillate fuels as  approximately 392.5 million gallons. As such, the maximum amount of  biofuel to be blended into the desired fuel amount would be equivalent to  approximately 39 million gallons (at 10 percent blend) to 196 million  gallons (at 50 percent blend). The Department of Agriculture made  available approximately $27 million in Commodity Credit Corporation  funds to support successful biofuel contract awards. According to DOD  officials, proposals with biofuel bids for only naval distillate fuel but not Jet  Propellant-5 jet fuel were received. However, according to DOD officials,  none of the submitted proposals successfully met all of the technical  evaluation factors. The fuel contract awards under this solicitation were  announced on February 20, 2015. According to DOD officials, none were  for alternative fuels.
DOD’s second attempt to purchase alternative fuels for military  operations, through its large-scale fuel program, began in April 2015. At  that time, DOD issued a solicitation, through its regular domestic large- scale fuel purchase program for the Rocky Mountain/West  Coast/Offshore region of the United States, for the purchase of Jet  Propellant-5 jet and naval distillate fuels for which blended fuels with  between 10 to 50 percent alternative fuels were to be considered. The  solicitation listed the estimated maximum quantity of Jet Propellant-5 and  naval distillate fuels as approximately 290.6 million gallons. As such, the  maximum amount of biofuel to be blended into the desired fuel amount  would be equivalent to approximately 29 million gallons (at 10 percent  blend) to 145 million gallons (at 50 percent blend). The Department of  Agriculture has made available approximately $66 million in Commodity  Credit Corporation funds to support successful biofuel contract awards.  Fuel vendors had until May 18, 2015, to submit proposals, and DOD  plans to make contract awards before October 1, 2015.
According to a Navy official, the Department of Agriculture’s Commodity  Credit Corporation funds will not be available for DOD’s regular fuel  purchase programs for the Atlantic/European/Mediterranean and Western  Pacific regions because those are international rather than domestic fuel  purchases.

	DOD Has Used Defense Production Act Authorities in Collaboration with Private Industry to Promote Domestic Biofuel Production

		Defense Production Act Allows DOD to Provide Financial Incentives to Private Firms to Meet Critical National Defense Needs

Title III of the Defense Production Act (DPA)—Expansion of Productive  Capacity and Supply—generally allows military and civilian agencies to  provide a variety of financial incentives to domestic firms to invest in  production capabilities, so as to ensure that the domestic industrial and  technological base is capable of meeting the national defense needs of  the United States. Use of certain Title III authorities requires a  determination that, among other things, the industrial resource, material,  or critical technology item is essential to national defense and U.S.  industry cannot reasonably be expected to provide the capability needed   Title III financial incentives can reduce the risks for  in a timely manner.domestic suppliers associated with the capitalization and investments  required to establish, expand, or preserve production capabilities.  According to DOD officials, the focus of Title III is to establish  commercially viable industrial capabilities that will continue to prosper  after federal government assistance ends. Funding for Title III projects  comes from appropriations for DPA purchases, DOD components, or  other federal agencies.

		DOD Has Used DPA Title III Authority for Two Biofuel Production Projects

			Bio-Synthetic Paraffinic Kerosene Project

DOD first used Title III authority in relation to alternative fuels in 2010, for  the purpose of producing Bio-Synthetic Paraffinic Kerosene, an  alternative jet and naval distillate fuel made from the Hydroprocessed  Esters and Fatty Acids production process. Alternative fuels made from  this process can meet DOD’s technical fuel specifications when blended  with conventional fuels. The modified biorefinery resulting from this  project is to produce Bio-Synthetic Paraffinic Kerosene fuels and other  co-products from natural oils, fat, and grease feedstocks via the  Hydroprocessed Esters and Fatty Acids production process.
According to DOD officials, the project originated from the Department of  Defense Appropriations Act for Fiscal Year 2010. The explanatory  statement for that act listed Bio-Synthetic Paraffinic Kerosene Production  among the DPA projects for that year. In September 2009, the Air  Force, as Executive Agent for the DPA Title III program, issued a Request  for Information inviting the private sector to provide information about  establishing manufacturing capability for Bio-Synthetic Paraffinic  Kerosene fuel derived from renewable biomass feedstock sources.  According to DOD officials, only one private company responded to the  request. In December 2010, the Under Secretary of Defense for  Acquisition, Technology, and Logistics issued a determination that (1) the  industrial resource or technology item of Bio-Synthetic Paraffinic  Kerosene fuel is essential for national defense, and (2) U.S. industry  cannot reasonably be expected to provide this fuel in a timely manner  without action under the Defense Production Act. This written  determination was submitted to relevant congressional committees.Before awarding the Bio-Synthetic Paraffinic Kerosene production  agreement, DOD made a second attempt to identify other private  companies with expertise in this area. With no additional responses, DOD  entered into a technology investment agreement in September 2012 with  the sole private company that had previously responded to the Request  for Information.
According to DOD officials, the modified biorefinery project began in  September 2012 and the biorefinery is expected to be completed and  operational in September 2015. They stated that it has an end goal of  producing alternative fuels and co-products in a volume between 20 and  28 million gallons per year as of when DPA Title III assistance ends, and  will have the capability to blend the alternative fuel with conventional  petroleum fuel for its customers. DOD’s financial contribution for this  project comprises approximately $4 million of its total cost, with the  awarded private company paying the remainder. A commercial airline has  announced that it has entered into an agreement with the biofuel refinery  to purchase 15 million gallons of the jet fuel produced by this project over  3 years. Also, the biofuel refinery announced that it has a strategic  partnership with a fuel distributor that supplies aviation fuel. DOD officials  noted that, although the department has not entered into any agreement  to purchase alternative fuel from this modified biorefinery, the biofuel  refinery would be able to compete for a fuel contract with DOD via      DLA-E’s existing large-scale fuel purchase process.

			Advanced Drop-In Biofuels Production Project

DOD’s second use of Title III authority in relation to alternative fuels  began in 2012 with the Advanced Drop-in Biofuels Production Project.  The goal of the project is to establish one or more domestic integrated  biofuels production enterprise capable of annually producing at least 10  million gallons of alternative jet and/or naval distillate fuel that can meet  DOD’s technical fuel specifications. This enterprise would include  feedstock acquisition and logistics, conversion facilities (Integrated  Biorefineries), and fuel blending, transportation, and logistics. The effort  would include the design, construction or retrofit, validation, qualification,  and operation of a domestic commercial-scale integrated biofuels  production enterprise.
In June 2011, the Department of Agriculture, Department of Energy and  Department of the Navy signed a memorandum of understanding that  initiated a cooperative effort to assist in the development and support of a  sustainable commercial biofuels industry. This occurred in response to  the president’s March 2011 Blueprint for a Secure Energy Future, which  challenged the Secretaries of these three departments to investigate how  they might work together to speed the development of drop-in biofuels  substitutes for diesel and jet fuel. The Blueprint noted that competitively  priced drop-in biofuels could help meet the fuel needs of the Navy, as well  as the commercial aviation and shipping sectors. The memorandum of  understanding explained that given the current economic environment,  significant start-up risks, and the competitive barriers posed by the firmly  established conventional fuels market, private industry would not assume  all of the uncertainty and risk associated with providing a commercially  viable production capability for drop-in biofuels. Accordingly, it was  necessary for the federal government to cooperate with industry to create  a strong demand signal and to make targeted investments to achieve the  necessary alternative fuels production capacity. The stated objective was  to construct or retrofit multiple domestic commercial- or pre-commercial- scale advanced drop-in biofuel plants and refineries. Specific  characteristics for these facilities include the capability to produce biofuels  meeting DOD’s technical fuel specifications at a price that would be  competitive with conventional fuel, and that they would cause no  significant impact on the supply of agricultural commodities for the  production of food. Under the memorandum of understanding, the three  departments stated their intentions to equally contribute funding over a  period of 3 years. The Departments of Energy and the Navy plan to apply  their funds through the DPA. The Department of Agriculture plans to  provide its contribution via the Commodity Credit Corporation funds, as  discussed above.
In August 2011, the Air Force, as Executive Agent for the DPA Title III  program, issued a Request for Information to the private sector to obtain  information related to advanced drop-in hydrocarbon biofuels production,  including the technical, manufacturing, and market barriers to establishing  a viable business for producing biofuels. According to DOD officials, an  interagency team was formed to review the responses and use the  findings as guidance to develop the requirements for the biofuel project.  In June 2012, DOD announced the initiation of and a solicitation for the  Advanced Drop-in Biofuels Production Project, which would provide  awards for biofuels production facilities over two phases. Phase I  awards would be for planning and preliminary designs for biofuel  production facilities; and Phase II awards would be for constructing,  commissioning, and performance testing of biofuel production facilities. In  January 2013, the Under Secretary of Defense for Acquisition,  Technology and Logistics issued a determination that (1) an advanced  drop-in biofuels production capability is essential to the national defense;  and (2) without action under DPA authority, U.S. industry could not  reasonably be expected to provide the capability in a timely manner. This  written determination was submitted to relevant congressional  committees. In May and June 2013, DOD selected four private  companies to receive Phase I awards totaling $20.5 million, with private  industry contributing funds for the remainder of the Phase I costs (at least  50 percent).
Only Phase I awardees were eligible to apply for the Phase II awards. In  August 2014, three of the four Phase I awardees received Phase II  awards totaling $210 million, with private industry contributing funds for  the remainder of the costs (which are to be more than 50 percent). Phase  II awardees are currently performing activities in preparation for  constructing their biorefinery facilities, including conducting environmental  analyses and securing financing. According to DOD officials, DOD will  monitor the Phase II awardees by conducting biweekly teleconferences,  quarterly status reporting updates, and site visits. In general, monitoring  activities will monitor factors such as whether there are any changes to  the company’s project scope, implementation, or timelines; and if the  company’s amount of spending correlates to how much of the biofuel  production facility has been completed. As shown in Table 1 below, the  Phase II awardees will be making alternative fuel from different  production processes and deriving it from various feedstock sources.  According to DOD program officials, the Advanced Drop-in Biofuels  Production Project should provide, between 2017 to 2018, production  capacity for about 106 million gallons per year of alternative jet and naval  distillate fuels that meet DOD’s technical fuel specifications and are  available at a price that is competitive with that of conventional fuels.
DOD applied $100 million in fiscal year 2012 procurement funds to this  project. For fiscal year 2013, the explanatory statement for the  Consolidated and Further Continuing Appropriations Act, 2013, listed    $60 million for this project. The National Defense Authorization Act for  Fiscal Year 2013 provided that amounts made available to DOD under  the DPA for fiscal year 2013 for biofuels production could not be obligated  or expended for the construction of a biofuel refinery until matching  contributions were received from the Department of Energy and  equivalent contributions from the Department of Agriculture. For fiscal  years 2014 and 2015, the Department of Energy received authorization to  transfer up to $45 million each year for DPA purposes. The Department  of Energy has contributed those funds to the DPA fund for this project.  For the Department of Agriculture’s equivalent contribution, it has  committed to expenditures of Commodity Credit Corporation funding  through the initiative described above. Two commercial airlines have  announced they are entering into fuel purchase agreements with two of  the Phase II awardees. The third Phase II awardee, according to DOD  officials, is also in talks with potential non-DOD customers. DOD officials  noted that, although the department has not entered into any agreement  to purchase alternative fuels from these private companies, they would be  able to compete for a contract with DOD via DLA-E’s existing large-scale  fuel purchase process.

	Agency Comments

We are not making any recommendations in this report. We provided  DOD with a draft of this report for review. DOD provided technical  comments on our findings, which we have incorporated where  appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense; the Deputy Assistant Secretary of  Defense (Manufacturing & Industrial Base Policy); the Assistant Secretary  of Defense (Installations, Energy, and Environment); the Director,  Defense Logistics Agency, and the Secretaries of the Army, Navy, and Air  Force. In addition, the report is available at no charge on the GAO  website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-5257 or merritz@gao.gov Contact points for our Office of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix V.

Appendix I: Military Department Guidance on Alternative Fuels

The Department of the Navy includes two military services—the Navy and the Marine  Corps. the Air Force purchased more than 2 billion gallons of petroleum- based jet fuel in fiscal year 2014. This was about 97 percent of all of  the Department of the Air Force’s fiscal year 2014 petroleum and  other fuel product purchases. The plan indicates that using  alternative jet fuels could help to diversify the types of energy and  obtain the quantities of energy that are needed to perform the Air  Force’s missions, which are currently “heavily dependent” upon  petroleum and petroleum-derived fuels, thereby posing significant  strategic and security vulnerabilities.
The Department of the Army uses jet fuel in its tactical and ground  combat vehicles, aircraft, and other ground support equipment (such  as generators) and engages in efforts to test and approve alternative  jet fuel made from different production processes for use in these  platforms. However, the Army does not have specific alternative fuel  usage goals in its energy guidance. The Department of the Army’s  2015 Energy Security and Sustainability Strategy includes the  strategic goals, among others, of: optimizing use and assuring  access.  To accomplish these goals, the Department of the Army  plans to minimize overall energy demand and improve efficiency,  while securing access to renewable/alternative energy sources to  diversify and expand its resource supply, among other actions. The  Department of the Army purchased more than 350 million gallons of  petroleum-based jet fuel in fiscal year 2014. This was about 76  percent of all of the Department of the Army’s fiscal year 2014  petroleum and other fuel product purchases. ) Strategy (May 1, 2015).

Appendix II: Detailed Quantity and Cost Data of Military Departments’ Alternative and Conventional Fuel Purchases

Tables 2 and 3 show detailed quantity and cost data by fiscal year of the  alternative and conventional petroleum jet and naval distillate fuels that  the military departments purchased from fiscal years 2007 through 2014.

Appendix III: Fuel Properties

Before any alternative fuel can be used in military operations, it is tested  and approved to meet unique safety and performance standards. Listed  below are examples of fuel properties important to these standards.  Requirements for alternative fuels are set out in the relevant DOD  technical fuel specification documents.
Flash point – A liquid fuel’s flash point indicates the temperature at  which existing vapors will combust, or ignite. Fuels with higher flash  points contribute to a less flammable, less hazardous fuel for better  safety and combat survivability. Jet fuel (specifically Jet Propellant-5)  used on military ships is required to have a substantially higher flash  point than other jet fuel for safety reasons since this fuel is stored in  large quantities on aircraft carriers and other vessels.
Energy density is evaluated for both the mass and volume of fuel required. the components coming in contact with the liquid fuel can remain.  Also, it can affect the rate of deposits forming when the fuel  temperature is elevated; these deposits on components can affect  their performance, such as reducing the fuel flow through fuel filters.
Lubricity – A liquid fuel’s lubricity refers to its effectiveness in reducing  friction between moving parts in equipment such as pumps and fuel  control units.
Viscosity – A liquid fuel’s viscosity—which is critical to proper  equipment operations—is a measure of its internal resistance to  motion or flow.

Appendix IV: Alternative Fuel Testing Protocols

The Departments of the Navy, Air Force, and Army test alternative fuels  to ensure that they can be used in and on tactical and combat ground  vehicles and ground support equipment, ships, aircraft, and fuel  distribution systems. In general, the military departments use the test  protocols listed below, which are similar steps to those used in evaluating  whether to include prospective alternative fuels in the commercial jet fuel  standard issued by ASTM International.
Specification properties – This laboratory testing protocol evaluates  how a prospective alternative fuel’s basic chemical and physical  properties—such as its freezing and flash points—compare with the  baseline properties of conventional jet or naval distillate petroleum  fuel. These required properties are outlined in the associated  technical fuel specification documents.
Fit for purpose – This laboratory testing protocol involves evaluating  additional properties that are inherent to conventional jet or naval  distillate petroleum fuel, such as how compatible a prospective  alternative fuel is with specific metallic and non-metallic materials and  various additives that, among other things, inhibit corrosion and  dissipate static.
Component/Rig testing - This testing protocol involves evaluating how  a prospective alternative fuel performs in major components found in  the military department’s ground vehicles and support equipment,  ships, and aircraft. Examples of these components include injectors  and the section of an engine where combustion occurs.
Full scale testing – This testing protocol involves evaluating how a  prospective alternative fuel performs in engines of ground vehicles  and support equipment, ship and aircraft engines, auxiliary power  units, and fuel handling systems.
Platform testing - This testing protocol involves evaluating how a  prospective alternative fuel performs when different types of ground  vehicles and support equipment, ships, aircraft, and fuel support  equipment run on the fuel. Typically, these equipment and platforms  are the military department’s assets that are running on alternative  fuel in settings and under conditions that mimic environments where  military operations may occur.

Appendix V: GAO Contact and Staff Acknowledgments

	GAO Contact

	Staff Acknowledgments

In addition to the individual named above, Marilyn K. Wasleski, Assistant  Director; Jerome A. Brown; Nirmal Chaudhary; Lindsey M. Cross; Philip  G. Farah; Shvetal Khanna; Michael Shaughnessy; Amie Steele; Cheryl  Weissman; and Alexander Welsh made key contributions to this report.

Output:
Why GAO Did This Study

DOD is the single largest consumer of energy in the federal government, spending billions of dollars annually on petroleum fuels to support military operations. One of DOD's strategic operational energy goals is to expand its energy supply options. Investing in alternative fuels—liquid fuels, derived from non-petroleum feedstocks, whose use does not necessitate any modifications to platforms and equipment—represents one means of potentially achieving this goal.
GAO was asked to examine aspects of DOD's investment in alternative fuels. GAO reviewed the extent to which DOD (1) has purchased alternative fuels, and has demonstrated these fuels can meet its safety, performance, and reliability standards; (2) has a process for purchasing alternative fuels for military operations that takes into consideration any cost differences between alternative and conventional fuels; and (3) has used the DPA authorities to promote the development of a domestic biofuel industry.
GAO reviewed past alternative and conventional petroleum fuel procurements, as well as statutes, regulations, and DOD guidance related to fuel purchases. Also, GAO reviewed various documents on biofuel projects initiated under the DPA authority and interviewed cognizant DOD officials involved with purchasing and using fuel and administering the biofuel projects.
GAO is not making recommendations in this report. DOD provided technical comments on the findings, which GAO has incorporated where appropriate.

What GAO Found

The Department of Defense (DOD) has purchased small quantities of alternative fuels—jet and naval distillate (known as F-76, to power ships)—for testing and demonstration purposes, but has not done so yet for military operations. DOD's testing process validates the ability of alternative fuels to meet safety, performance, and reliability standards for military equipment and platforms. From fiscal years 2007 through 2014, DOD purchased about 2.0 million gallons of alternative fuel for testing purposes, at a cost of about $58.6 million. Over the same period, it purchased about 32.0 billion gallons of petroleum fuel at a cost of about $107.2 billion. DOD has approved alternative fuels made from two production processes for use in certain items and is continuing to test others.
DOD is currently required by law to ensure alternative fuel purchases for operational purposes are cost-competitive with conventional fuels and has a standard process to purchase large-scale volumes of all fuels. Proposals are evaluated according to technical acceptability and price. To help the Navy purchase alternative jet and naval distillate fuels blended with conventional fuels, the Department of Agriculture plans to provide funding directly to alternative fuel vendors that meet certain requirements and receive awards from DOD. These funds are intended to defray some of the alternative fuel producer's extra costs—such as costs of domestic feedstocks. Per DOD, no alternative fuel vendors have received awards so none of these funds have been paid out yet.
DOD has used financial incentives provided for by Title III of the Defense Production Act (DPA) to help facilitate the development of commercially viable plants for producing biofuels for the military and commercial sectors. To date, DOD has used this authority for two ongoing projects: Bio-Synthetic Paraffinic Kerosene and Advanced Drop-In Biofuels Production Project and the federal government's cost share for these projects was about $234.1 million.