Guns and Butter: Diversifying the Military’s Portfolio to Avoid “Cold Iron”

“It’s the economy, stupid!”

That mantra is making a comeback following its heyday when gas prices were well under $1 per gallon. Unprecedented times, in fact, mean that slogan is back in an unprecedented way—but perhaps it should be phrased without the ‘the’: “It’s economy, stupid!”

Today, federal budget dollars are tight, tough decisions need to be made, and investment in energy security appears to be in the crosshairs. We seem to have come back to a politically charged argument from Economics 101: the guns and butter problem. However, in this case the calculus is a wee bit more challenging because there’s a third complementary variable—energy!   

As I mentioned in our book’s national security chapter, the Department of Defense’s mission is defense, and energy is key vulnerability. This has been acknowledged going back as far as the Nixon Administration but has really become a major policy focus over the last decade. More important than the opinions of us analysts in here in D.C. (and Northern Virginia), commanders across the military services at the operational and tactical levels have been seeing the perils of our energy tether first hand, and have subsequently been voicing the need for real energy security alternatives that enable our warfighters in the field and support our strategic security interests. Just last week, a pointed letter penned by nine retired military “grey beards” was sent to the Senate Armed Services Committee reaffirming these harsh realities and supporting the military’s alternative fuel efforts.

The National Defense Industrial Association (NDIA)’s June edition of National Defense magazine also had much to say recently about balancing national security and lean times as well as about staying the course on strategic energy security.

In that issue, NDIA President Lt. Gen (Ret.) Lawrence Farrell, Jr., not only discusses the budgetary necessity to overhaul defense acquisition but strongly makes the case for continued defense pursuit of energy security and renewable technologies. A recent post by Andy Bochman at the well-regarded DoD Energy Blog focused in on Lt. Gen. Farrell’s emphasis on importance of diversification and value of time.

 I would add a third core issue as that of uncertainty, and its implications in cost and investment risk. Pre-commercial technologies demo procurements always arrive on the market as quite expensive—our kids might not believe it, but I’m pretty sure Intel’s first batch of processors weren’t retailing for 100 bucks. Along those lines, fuel procurements on a per gallon basis come with a high price tag.  That said, continual policy and market uncertainty will not serve taxpayers in saving their dollars, particularly in the long-run as the private sector equity factors these risks into the capital debt servicing prices.

Expensive tastes.

But consider the situation at hand. Our defense capabilities rely on military JP-8/5 (jet fuel) and F-76 (diesel) fuels. Our tactical systems and weapons platforms represent trillions of dollars in defense investments and our warfighters can only fight if we have access to petroleum fuels (as an aside, the fully burdened cost of fuel is definitely not market spot price per gallon).

Military platforms cannot switch out to natural gas, wind, or other alternatives available to the civilian sector (except for aviation, which is likewise reliant on jet fuel). Many have said that DoD “would have access to the last barrel of fuel,” but at what cost to the remaining budgets for defense acquisition and training? More U.S. petroleum production helps, but only marginally so; this commodity is priced according to a volatile international market, which has increasingly been whipsawing the Services’ budgets as seen in past years.

We need diversified fuel sources to sustain our capability and reduce our strategic vulnerability. In our book, I mentioned the military’s early alternative fuel work that focused on converting U.S. fossil fuels into synthetic fuels for the purposes of energy security. The passage of EISA Section 526 put restrictions on the DoD’s ability to purchase these fuels because of their GHG emissions. But new technologies have emerged since then, and now drop-in biofuels offer diverse feedstocks and operational fuel solutions (with the potential side benefit of lower emission and environmental impacts) that can be accelerated to commercialization thru DoD’s early adopter purchases and participation in the Defense Production Act to accelerate cost competitive availability. However, these efforts are underfire for cost comparison reasons when compared with mature industry fuel products. Our warfighters and citizen soldiers deserve diversified and secure fuel supplies buffered against the volatile petroleum markets. We need to balance our priorities among fuels, training, and platforms. While we may not face a future of “cold iron” sitting in our ports, what is the effect on readiness and training at $125, $150 or $200 per barrel?

In contemplating the political... err, sensitivity caused of late by the military’s alternative fuel efforts, my thoughts jumped back to recent a U.S. Citizenship swearing in ceremony in Fairfax, Va.  As I listened to almost 800 new citizens pledge their oath of allegiance to our great nation,  my mind wondered back to over a decade ago when I had made a similar oath, one familiar to every U.S. public official, civil servant, or military service member. Our promise…“to protect and defend the Constitution of the United States.”  Our Constitution’s preamble provides us fundamental common ground in our efforts to “provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.”

With this in mind, I propose we take a deep breath, get to work, make informed and tough choices, and ensure we can afford to sustain US military capability and power past $125, $150, and $200 per barrel petroleum. We can do so taking a page from our 401(k) accounts…get up to speed, diversify, and rebalancing our portfolio constantly to maximize performance while managing risk.

I’m heading to NDIA’s E2S2 conference next week, and I hope to weigh in with some of the industry scuttlebutt. Hopefully, that post will include more on weapons platform comparison to conventional and alternative fuels, as well as observations from the ground at the conference. 

A Powerful Climate Stakeholder Emerges

“Green” issues have their stereotypes. You hear it many times when an environmentally-friendly initiative is written off for its “tree-hugger” qualities or as a luxury that doesn’t warrant investment. Given the political divide caused by the climate change issue, it would seem we still have a ways to go before we have a universal appreciation for the need to act before the impacts of climate change are fully manifested. Still, with such a political divide, it can come as quite a surprise to some when stakeholders who would never be characterized as “green” emerge to bridge that chasm for reasons of cold math or analysis—such as in national security.

Such is the case when Secretaryof Defense Leon E. Panetta recently expressed the Pentagon’s concerns about a changing climate.

“The area of climate change has a dramatic impact on national security,” Panetta said. “Rising sea levels, severe droughts, the melting of the polar caps, the more frequent and devastating natural disasters all raise demand for humanitarian assistance and disaster relief.”

Panetta went on to discuss issues that fall not only under the umbrella of “energy security,” but also fiscal responsibility, noting that the last year’s Department of Defense tab for fueling its fighters, tanks, and ships was in the neighborhood of $15 billion, and operations in Afghanistan cost the department more than $50 million each month for fuel.

The interesting thing about Secretary Panetta’s views is that he speaks at a time in which with many of his subordinates are already are working to prepare the nation’s military for the impacts that a changing climate could bring—in the case of strategically considering natural resource issues, the military is fertile ground for this sort of trickle-up policy. 

Defense Secretary Panetta speaks at an annual reception for the Environmental Defense Fund, May 2, 2012. DoD photo by Erin A. Kirk-Cuomo.

Panetta’s views also serve to clear the road a very direct path to action: the removal of the politics of GHG mitigation efforts in favor of a broad acceptance of adaptation as the goal (the idea being that any future security environment requires planning and action, and adaptation-oriented strategies naturally complements existing national security functions). This is something we look at in the book, and certainly in our chapter on national security—the development of strategies that make sense for organizations, with the added benefit of providing a means for addressing the climate change issue.

In 2013, it’s expected that the Defense Department will invest more than $1 billion in technologies that make alternative fuels and energy efficiency a reality for its weapon systems. But the costs associated with such initiatives are attractive targets in political battles, particularly when the shrinking defense budget is viewed with a zero-sum mentality.

The reality is that sometimes the most promising solutions that science and technology can provide first require support from the public sector; consider all that has been made possible because of the space program—not just Tang, but also GPS and Teflon. And the military is a large customer in the energy market. Their ability to make such options a viable solution to energy issues should be encouraged. This is particularly true when the alternative is the status quo and its associated risks. As many in uniform know, being frozen and still on a battlefield is one of the fastest ways to become a casualty—which  certainly doesn’t achieve the mission.

Still, military leaders have some policy issues to overcome and balance. For example, previous Congressional action has tied the military’s hands on the alternative fuels issue (Section 526 of the Energy Independence and Security Act of 2007 (EISA 2007) effectively bans them from buying alternative fuels other than biofuels). The bright side, according to LMI energy security expert (and one of the book’s authors) Jeremey Alcorn, energy security efforts abiding by 526 often have side benefits that include not only climate mitigation but the establishment of a new domestic industry here at home.

Land use and water - Rio Grande Water Stakeholders

Our book has a chapter concerning mitigation actions and adaptation practices that land managers, small governments, and agencies could use regarding Climate Change.  The Land chapter really has a good deal to do with water.  I started my career in water quality, and resources, and almost immediately recognized that what happens on the land has more to do with water quality and quantity than what happens in the water.  As I write this post, I am on the way to the 3^rd Rio Grande Stakeholders meeting in Alamosa CO.  This group is trying to piece together a way to manage water resources in an area of the country where water is a scarce and highly prized commodity.  I met with them in October to share some activities that US Customs and Border Protection and the USDA Agricultural Resource Service are working together jointly to accomplish.  The activities are centered on trying to control Carrizo Cane, a highly invasive weed that is rampant along many southern waterways, especially the Rio Grande.  The Mexicans call Carrizo Cane el ladron de agua – the water thief.  Water stakeholders are concerned with the cane because it grows in wet soil next to rivers and in irrigation canals, and uses up the water.  USDA studies estimate the amount of water use in a cane field higher than the amount of water used at peak growth by corn!  Hydrologists care about cane because is actually makes its own dry land by crowding into the rivers and drainage areas; trapping soils, and making dry land.  Some rivers in Mexico have not actually had flowing surface water in them in decades because of this plant.  Habitat managers are concerned with it because it grows a thick almost impenetrable monoculture which crowds out native plants and animals.  This impenetrable mass of cane – think of the densest stand of bamboo you’ve ever heard about and you get the idea – is of great concern to those tasked with managing the nation’s southern border.  I have personally seen a man in a red shirt disappear in less than 10 feet into the cane.  So controlling the cane can make more water available for agricultural use, industry, drinking water and habitat.  Controlling the cans can allow native stands of vegetation to re-establish and provide habitat, and allow much needed mobility and visibility along the southern border.

Carrizo Cane crowding the riverbank near Laredo, TX

Back to the Stakeholders meeting.  So these stakeholders are meeting, and the upshot is that there is a great deal of overlap in needs among agencies and groups that often seem to have conflicting missions.  The Rio Grande stakeholders group doesn't so much have conflicting interests, but rather is comprised of  many agencies that do something to support their agency’s mission (dabble) when what is needed is a coordinated effort that achieves something larger. No single agency has enough funding to reach the larger goal, so maybe cooperation and coordination can achieve this.  By meeting together and hammering out the needs and concerns, the similarities can be identified and synergy can be brought to bear on tough problems.  Not just Carrizo cane.  During this time of limited financial resources an approach like the stakeholders meeting can really help discover ways to move forward. 

Water availability is something I spent a good deal of time with in the Land chapter of the book.  It is a resource that is being greatly affected by climate change.  Changing weather patterns not only make for profound droughts like the current one in Texas, but also may change the time of year when water is available.  If there is no snow pack to slowly melt in the spring, will there be any water for the crops in the summer when they need it?  Recognizing some of these problems is only part of the solution.  Acting to adapt to them will require stakeholders to see where they can act in concert or at least not act in a counterproductive fashion.

Conference Calling

The restaurant/hotel/resort industry fondly refers to the next two months as as “conference season.” While it sometimes seems like conferences and forums are a year-round business, especially in the federal policy sector, there nonetheless are a few taking place over the next few months that have caught the interest of many of the authors of Climate Change: What You Can Do Now (meaning we’ll be sharing thoughts on a few of these events over the next few months via this blog).

Julian Bentley, who led the development of the chapter on fleets and vehicles, is heading to Los Angeles this week for the EVS26 (the 26th International Electric Vehicles Symposium). This event attracts an international audience of stakeholders, with more than 200 speakers, more than 160 companies exhibiting (Toyota, for example, will unveil their new RAV4 EV), and approximately 3,000 electric drive industry leaders, government representatives and energy officials in attendance. Their goal is to further the discussion of how the market for electric vehicles can be increase, and with a wider worldwide deployment.

One of the hot topics that Julian believes will be a source of much discussion, given the event’s location, includes California’s emissions policies, and how energy use in transportation can be shifted to low-emission electricity.

You can literally see California's emissions challenges.

A new article in Issues of Science and Technology raises that very issue. Noting that transportation accounts for more than 40 percent of California’s emissions (evidenced by the state’s ubiquitous freeways and smog), the authors discuss the multitude of challenges facing the state in meeting an ambitious 80 percent reduction goal of 1990-level greenhouse gases by 2050:

The 80% goal cannot be met without dramatic change in driver behavior and transportation technology. Researchers and companies have made rapid technological progress in recent years in improving conventional and advanced technologies. Performance-based regulations for gasoline-powered cars are expected to double fuel economy between 2010 and 2025, and rapid advances are being made with advanced lithium batteries and vehicular fuel cells. With greater emphasis on energy efficiency and low-carbon technologies, dramatic reductions in oil use and GHG emissions will occur. A key ingredient in reaching this goal will be government policy to stimulate innovation, encourage consumer behavior changes, and direct society toward large reductions in oil use and GHG emissions.

Like many issues related to climate change, there’s a clear absence in federal policy to dictate action. Much of the burden (or opportunity) falls on the states and local governments, along with the various stakeholders and industry partners. And as with most action, innovation makes the path substantially easier to travel down.

One of the themes in the book is the idea that direct action often represents the path of least resistance. In the case of vehicles and fleets, one idea might be the substitution of alternative fuels for conventional fuel, and likewise, electric vehicles within traditionally powered fleets. Clearly, policy is driving some of the changes in California, but it remains up to the private sector to innovate new technologies that make these ends possible through profitable means.

That’s why events like EVS26 are critical to that process. Even with all the sharing of ideas that happens through the internet, there’s something about face-to-face interaction with industry peers that spurs the mind to greater things. I expect some of the reactions we’ll be hearing from our authors over the next few months will have some pretty interesting insights.

The Climate in Your Supply Chain

Our decisions have consequences, some intentional and some unforeseen. This is especially true for the decisions we make about the products we buy and sell and the consequences for climate change. Sure, it’s easy to connect some decisions directly to climate change. If we run the heater or the air conditioner more, we use more energy resulting in more greenhouse gas emissions and, likely, contribute more to a changing climate. An easy cause and effect connection to make, much like many others we make every day. But what about decisions where the effects are not as clear?

Coke vs. Pepsi is not longer just about taste, calories, or secret ingredients.

Every day we make purchasing decisions where we select the product we need from a variety of options, yet how often do we think of the climate change impacts of those decisions? Coke vs. Pepsi, Chevy vs. Ford, Mac vs. PC, beef vs. chicken, paper vs. plastic. We make these decisions because there are real differences in the options; differences due to different materials used, sourced from different regions, assembled with different techniques. And these differences mean that the products have a different impact on our changing climate.

Now consider the decisions a typical company makes about the thousands of products it buys. Traditional procurement practices base purchasing decisions on factors such as total ownership costs, delivery terms, and product quality. As Mike Canes pointed out, there is a real cost to greenhouse gas emissions. When an organization starts managing its effect on the climate, clearly the effects of the products it buys must be considered. By including climate change in procurement decisions, companies can find greater greenhouse gas emissions reductions than can be found looking internally.

The benefits of managing climate change in the supply chain do not end with a single company. Industries, such as electronics and outdoors products, have shown that, working together, they can change practices across the industry. Industry wide standards, such as the Electronics Industry Code of Conduct, can shift the perception of climate management across the entire industry, making the supply chain a force of change, not just a tool of commerce. A focus on climate-friendly solutions can even spur innovative was to source and deliver products, as Matt Daigle described with using local waste products to build roads and erosion control in Nicaragua.

Each of us and the organizations we work for can take actions to reduce greenhouse gas emissions. When we extend those actions to the things we buy, we can have an even greater impact. This is why managing sustainability in the supply chain is important. And this is how supply chains can be a force of good in an industry and across the economy. 

Economics of Climate Change

Economics has something to say on the topic of climate change. It asks, what are the costs of taking action, and what are the costs of not doing so?   If we can reduce costs by more than we have to spend, then surely we should take more actions now.  On the other hand, no sense in spending more than we’ll eventually save, properly discounted back to the present.

Simple to say, but complicated to apply.  How much do we really know about future costs of climate change?  At what rate should we discount the future into the present?  And how much can we lower the costs of action if we invest in technological improvement today?   Economic analysis can frame an optimal path forward once answers to these questions are forthcoming, but facts on the ground are constantly changing so the answer today might be different from that tomorrow. 

Still, economists agree on one fundamental principle.  If carbon dioxide and other greenhouse gases are a cause of adverse climate change, then these gases should be priced at their estimated costs to society.  Such pricing presumably will cause people to economize their use and encourage entrepreneurs to offer substitutes.  That’s why many economists (including me) advocate a carbon tax.  Cap and trade is another mechanism for pricing carbon, though for a number of reasons it’s a less desirable approach.  Still, if it’s the only way to price carbon, it’s probably better than nothing at all.

For the sake of argument, let’s agree that pricing carbon is the way to go.  But what price should be set, and how should it change over time?  A Dutch economist, S. J. Tol, has performed meta-analyses of estimated damages from climate change.  He finds that a price of about $20 per metric ton of carbon represents economists’ modal estimate.  But that translates to only about 20 cents per gallon of gasoline, a number many people find too low.  How much would 20 cents added to a gallon motivate people to change their driving and vehicle purchase habits? 

Some advocates of carbon pricing are willing to start with a low number but want it to rise steadily over time.  This would give people time to adjust but assure that carbon will become ever more expensive and hence achieve significant behavioral change.  There’s something to be said for this approach, but it ignores an important principle, namely that information changes over time, and we may later regret the pricing path we chose.  Suppose for example, that we eventually discover that climate change is less threatening than we once thought.  If so, we’d want a lower price for carbon, not a higher one.  Better to adjust carbon prices to the best available information as it is received than to move them according to a pre-set path. 

Of course, all this ignores political behavior, which generally doesn’t welcome new taxes and often seems to reflect a wish that the problem would evaporate.  Economists are off the hook for that; maybe political scientists should shoulder the blame.  But economists are on the hook for providing their best advice as the situation evolves, and right now that advice is to start pricing carbon as soon as possible and take it from there.       

Thoughts from the National Sustainable Design Expo

A few days ago, I braved the blustery April weather to check out the U.S. EPA’s National Sustainable Design Expo on the National Mall in Washington, D.C. It was exciting to see so many different groups pulling together for sustainable, innovative solutions to a wide array of problems—some of which can have serious impacts for mitigation and adaptation efforts for a changing climate.

One of the projects that caught my eye while I strolled around the Mall was a project by the University of Connecticut’s Engineers Without Borders chapter, which today wound up being declared one of this year’s winners. This group of students and their faculty supporters has been investigating ways to use local industrial byproducts such as steal slag and lime kilm dust to control erosion and to stabilize roads in Nicaragua.

According to the abstract the team submitted,

“The project will rely on the involvement of the local community with a design that can be implemented by them at very low cost compared to traditional erosion control practices. The construction of the road will significantly impact the local people, who rely on it for access to education, jobs and other infrastructure, but cannot afford to pave it.”

[Update: The team's faculty advisor, Dr. Maria Chrysochoou, passed alone a link to more info on the project, along with the above video. Our thanks to her for the information!]

It’s a reminder of how interconnected the various functional areas impacted by a changing climate are—something we fully recognize at LMI and discuss in the book. Think about it: this isn’t just about roads (infrastructure), or erosion (land use). There are implications that impact your supply chain and your ability to manage a fleet of vehicles—two critical elements of economic activity. There are public health considerations of paved areas as well. These structures can contribute to an urban heat island effect that must be addressed.

But the other lesson is in embracing and discovering advances that can be cost-effective and innovative while helping achieve an end in a fiscally responsible manner. You need your partners and suppliers to seek innovation, and be on board with your organizational philosophy as well.

In the book, we discuss how organizations can incentivize their suppliers to mitigate (and along the same lines, adapt) through their procurement guidelines. Greening your procurement guidelines means looking at the life-cycle of the infrastructure in question, considering its programming, design, build, and operation.

The paving of roads and highways is largely a state and local issue—fortunately there are partners out there preparing for such developments, like the Asphalt Pavement Alliance.

The bottom line is that if you’re the client, the people working for you will take their lead from where the business is coming from. That puts significant clout in the hands of those who seek out suppliers to do business with.

So congratulations to the UConn team, and all of this year’s winners, and to the EPA for a successful event!