February 1, 2006

The Military Surcharge for Oil

It has been said that the War on Terrorism is the first war that the U.S. is paying for both sides of the conflict. Our "oil addiction" is compromising our national security.

America pays a "national security surcharge" for each gallon of oil that is imported from the Middle East. The cost in blood can never be overestimated. But what has been the per gallon cost paid by the U.S. Treasury for military defense of our interests in the Middle East since 1991 and the first war in Iraq? This would be an externalized military cost that we do not see at the pump. It is also a cost that we do not incur for alternative fuels like E85 or biodiesel.

In an award-winning essay posted on the National Defense University website Lt. Col. John Amidon talleyed the the 1991-2004 military costs of this unreported subsidy and then divided that total by the number of gallons consumed in the U.S. He arrived at a price of $1.276/gallon. Since about 10% of our oil is imported from the Middle East, the actual per gallon surcharge for imported oil is about ten times higher ($12.50/gallon)!

Like Thomas L. Friedman, Lt. Col. Amidon calls for a "Manhattan Project" response to the Middle East petroleum dilemma because of the direct military costs of our dependence. He provides a reasoned two-phased approach to replacing oil import dependence which includes the production of cellulosic ethanol using domestic biomass and urban waste feedstock.

His article includes discussions about the history of Middle East oil dependence, Hubbert's peak oil forecasts, the political instabiity of the Middle East, the military challenge and costs, U.S. consumption patterns, and his two-phased "Manhattan Project" approach to resolving the dilemma. Excerpts from the article...


America's Strategic Imperative: A "Manhattan Project" for Energy
by Lt. Col. John Amidon, USAF
(Chairman of the Joint Chiefs of Staff award-winning essay appearing in the Joint Forces Quarterly of National Defense University)

Taken in whole, the National Energy Policy does not offer a compelling solution to the growing danger of foreign oil dependence. The 2004 Department of Energy budget for all types of renewable energy totaled $1.3 billion, increasing just 0.1 percent from 2002 to 2004, while lagging the entire Department of Energy budget, which increased 5.9 percent. Even if ANWR were fully exploited, proven reserves total about 7.7 billion barrels of recoverable oil, enough to supply the Nation for just over a year. Although the National Energy Policy sets forth a range of conservation and alternative technologies, no meaningful fiscal policy steps have been taken to bring them to the fore.

Corn is a poor choice for ethanol feedstock since it is the most irrigation-and fertilizer-intensive crop grown in the United States, and corn used for ethanol drives cattle feed prices higher, creating hidden costs at the grocery store. Although a nascent corn ethanol industry has developed, future expansion should be discouraged through a removal of the tax regime. Unsubsidized corn ethanol actually costs $2.24 per gallon to produce, making it uneconomical except in times of very high oil prices.

The biorefinery and cellulosic ethanol. Instead of valuable corn, the biorefinery produces ethanol using the starches and cellulose present in agricultural waste and byproducts such as corn stalks, rice straw, paper mill waste, recycled urban waste, and dedicated woody stemmed crops. Many of these sources of cellulosic ethanol are considered negative-cost feed stocks, meaning they have no food value and farmers must pay for their disposal. This gives cellulosic ethanol a much higher net energy balance than corn-based ethanol. Studies at candidate biorefinery sites in Indiana and Nebraska found that collocating ethanol biorefineries with existing power plants would allow production for $1.05/gallon to $1.60/gallon depending on the biomass selected. Cellulosic ethanol offers great promise for rural areas that have seen considerable depopulation due to modern farming methods.

One cellulose ethanol plant would enhance energy security by replacing crude oil imports of 2.4 to 2.9 million barrels per year; increase farm income by $25 million per year by creating economic value for residues that currently have little to no value or are simply viewed as waste; create economic development by creating over 1,000 new jobs during peak construction, and almost 200 new permanent jobs and about 450 spin-off jobs.

Biorefineries also hold great promise for urban areas. A typical large city has a substantial surplus of yard waste and wood debris, products that can no longer be deposited in landfills. New York and Philadelphia pay $150 per ton to dispose of municipal solid waste. Creating a simple urban wood recycling routine of household recycling bins would ensure a steady biomass supply and strengthen the economics of urban biorefineries through proximity to markets. Building an urban biorefinery in the hundred largest metropolitan areas could produce 7 billion gallons of ethanol a year, offsetting imported oil by 5 percent while helping solve urban waste problems.

The biorefinery is not a fanciful dream. In 1975, Brazil initiated a domestic ethanol program based on sugar cane waste. Over its 30-year life, the ethanol industry has produced $50 billion worth of ethanol while supporting 700,000 Brazilian jobs. Electricity cogenerated at biorefineries provides 9 percent of national requirements. Ethanol supports a fourth of domestic petroleum demand and can be priced more cheaply than gasoline. According to testimony in the Senate, sufficient cellulosic biomass is available in the United States right now to displace up to 10 percent of today’s oil imports.

The 2005 Department of Energy budget earmarks $2.5 billion for all categories of energy research. Given that the United States has spent $2.2 trillion over the past 14 years seeking energy security through military action, $50 billion spent to accelerate the arrival of PHEVs, TCP biorefineries, or other as-yet-undefined technology would seem a policy decision ranking with Thomas Jefferson’s Louisiana Purchase.

An ancillary bonus—clean air. Environmentalists have championed many of the above ideas for years but have been largely ignored or grudgingly placated with half-measures. Until now, economic considerations have trumped many of the environmentalists’ arguments as cheap gas and lack of government commitment knocked the props out from under the green platform. The Manhattan Project for energy would provide an ideal convergence of interests, bringing the economist, diplomat, soldier, and environmentalist under the same tent. In addition to girding energy security, PHEVs and TCP biorefineries offer dramatic improvements in the pollution impact of the transportation sector by either eliminating noxious byproducts entirely or transferring to less polluting energy sources.


Michael Gersh said...

Your math assumes that the entire military effort in the Middle East is due to oil, and that, absent oil in Arabia, this nation would not be involved there. If there were no war on terrorism, no clash of civilizations, no Jihadi dreams of global conquest, and no State if Israel, then the math might be closer to the truth. But the truth is that we are a global power, the wealthiest nation on Earth, with a pressing need to sustain something close to a global status quo. Even if we went entirely coal and nuclear, powering all of our vehicles off the grid, we would still have a strong reason to be involved in Iraq and Afghanistan. By the way, Afghanistan, last time I was there, did not have a single oil well, yet your figures include money for our military efforts there.

At least I assume so, since you did not post a link to the "award-winning essay posted on the National Defense University website." Could you provide one? I have been unable to find the article.

C. Scott Miller, EDP said...

The link appears in two places - under both the title to the entry "The Military Surcharge for Oil" and under the title of the article "America's Strategic Imperative: A 'Manhattan Project' for Energy." I highly recommend reading all of it.

Reasonable people can debate details of the accounting but I think the thrust of the issue is sound - our import of oil, particularly from the Middle East costs us dearly in blood and treasure. Many of these costs would not be borne if we imported from more stable regions or produced liquid energy domestically. Don't take my word for it - consider the source of the article.

The global energy status quo is oil based on 100 years of development and power politics. Until we make energy production something more regionalized and renewable, the friction between have and have not cultures will increase. We are reluctantly in Afghanistan because of the 9/11, Al Qaeda, oil financing, Taliban, and oil pipelines - and don't forget Iran. The whole region is a powder keg - only to become more so as the demand for oil increases, particularly in the Far East. Reduce demand, reduce dependance and we can more clearly see what our true interests are. But right now we are paying for both sides of a war that compromises our decision-making.

Would Iran be the nuclear power and the global threat they are today without profits from their oil? I think not. Would we care as much if they weren't? No.

Michael Gersh said...

Clearly we use oil as much as we do because it is the cheapest and highest density fuel available. When the price rises, we will use alternatives. Domestic production will rise also, as the high cost of recovery has restricted production here as well.

The debate gets poisoned by false economic arguments, driven by political agendas. What you seem to be saying is that we could abandon the Middle East if we had no use for petroleum. That is to say, let the towel heads murder each other (and the Jews) since they will never come over here and foul our nest. That argument is made stronger by false economic numbers. Sure, some part of our military spending can be theoretically applied to oil, but what percentage? No way to know. One side says all - oil is preventing us from going completely isolationist, and let the rest of the world go to hell without us. Lower taxes and peace shall abound. The other side says that the cost is zero - we must remain engaged in world geopolitics as the world's policeman. The truth, as always, lies somewhere in between but, exactly where, is unknowable. But, as far as I postulated on the costs represented in the article you sent me, my surmise was right - it places the entire Afghanistan effort in the pot. That is a case for the most extreme case of isolationism - a fringe idea at best. Take it to its conclusion, and we shall see an Islamic conquest of Europe in our lifetime. This nation is not ready to succumb to that vision.

C. Scott Miller, EDP said...

I am no isolationist. I grew up in a military family, in the shade of the Pentagon and armaments appropriations. In fact, my father wrote a book a few years ago called "Nuclear Weapons and Aircraft Carriers" about force projection technology development in the nuclear era. My brother sells jets for Lockheed Martin.

From my personal perspective, communications have shrunk the earth to the point that isolationism has become a quaint, vestigial concept - just ask the Chinese as they futilely try to control the internet.

I do think it is urgent for our culture to investigate alternatives to the oil paradigm for several reasons - oil has probably reached it peak of cheap availability, oil is polluting in its production and use, it will only get more expensive since demand is about to explode in Asia, its geographic rarity forces cultures to confront their own and competing interests, America's growing trade imbalance severly compromises our future security, and we could use a new paradigm to chew on for a while. An ethanol paradigm suffers none of these drawbacks and gives us the opportunity to greatly improve our liquid fuel options - as it has in Brazil.

I am also attracted to the idea that biomass as feedstock comes in as many forms as their are locations on the earth. Waste-to-energy is sheer alchemy. With cellulosic ethanol we have a universal renewable fuel that would replace oil as energy currency. It would be of tremendous global benefit to have a decentralized, clean method for creating energy fuels.

I think Lt. Col. Amidon in this article makes good points about the pitiful DOE budget for energy research versus the gargantuan expense of DOD intervention. Weapons that could do us harm, WMD, cost money - currency that comes in many forms, but especially as oil.

Mr. Natural said...

Personally, I think it would be GRAND to see articles like this posted in major newspapers. We don't need to learn to think outside the box, we need to learn to think a whole NEW BOX outside, inside, everywhere.

corndog said...

Scott Miller, I am in substantial agreement with your comments. I have been following the bio-fuels revolution for some time on my blog. I had seen Lt. Col. Amidon's essay on the net, but I too felt that not ALL costs of diplomacy in the ME would disappear with our oil dependency.

Some have withheld excitement for the promise of ethanol because it can't TOTALLY REPLACE petroleum, but for me, it doesn't have to. There is some percentage of renewable liquid fuel use in America which will BREAK OPEC. I don't know what the percentage is, but certainly somewhat less than half, in my view. The OPEC countries are just as ADDICTED to our dollars as we are to their petroleum, and I believe our security situation would be greatly enhanced by crossing this line in the sand (pun intended).

I am a Chevy dealer, let me assure you there is interest in flex-fuel vehicles, even here in Lynchburg where ethanol cannot be had at this time. People buy the cars or trucks, and can't wait to put ethanol in the tank.We are creating the demand little by little, which will eventually spur the supply through the profit motive. Ethanol is coming, it is now unstoppable, in my opinion.