Can the Navy Reform How the U.S. Uses Energy?

I had the opportunity Monday night to hear Secretary of the Navy Ray Mabus talk at the Council on Foreign Relations about the U.S. Navy’s efforts to transform how they use energy and their intention to become a catalyst for changes in overall energy consumption in the U.S.  The Navy has laid out some of the most ambitious goals in the nation regarding energy efficiency and alternative energy.  These include:

  • by 2012, creating a “Green Strike Group” composed of nuclear vessels and ships powered by biofuels and deploying that fleet by 2016;
  • by 2015, reducing petroleum use in its 50,000 commercial vehicle fleet by 50 percent by phasing in hybrid fuel and electric vehicles;
  • changing the way the Navy and Marine Corps award contracts during the acquisition process to consider the lifetime energy cost of the system
  • producing at least half the shore-based energy requirements from renewable sources, such as solar, wind and ocean generated by the base; and
  • by 2020, ensuring at least 50 percent of the Navy’s total energy consumption comes from alternative sources.

Secretary Mabus started off by talking about what motivates the Navy to take energy efficiency so seriously.  For every $1 increase in the price of oil the Navy pays an additional $31 million in fuel costs.  Ships are most vulnerable when they are refueling and it was during a refueling visit to Yemen that the USS Cole was attacked.  One Marine is killed on average for every 50 convoys in Afghanistan.  Convoys transporting fuel account for a significant portion of the total supply convoys in Afghanistan.

Much of the discussion focused on the Navy’s efforts to expand the use of bio-fuels.  Mabus said the right things about ensuring that organic matter grown for use in bio-fuels should not displace food production, something the EU has become concerned about as it tries to meet its own ambitious targets regarding members’ use of alternative energy.  Large Navy purchases and investment in new technologies helped cut the price of bio-fuels 50% last year and they are expected to go down another 50% this year.  However, although source diversity may be good from an overall national energy security perspective, it isn’t clear how expanding the use of bio-fuels would improve the security of the fleet or the Marines.  Any sort of liquid fuel whether it is derived from oil, algae, or composted unicorn tails needs to be transported to ports where ships will stop to refuel or through the same supply lines as oil based diesel to get to MRAPs that Marines are driving in Afghanistan.  Mabus also suggested that nuclear would remain steady as a portion of overall energy consumption by the fleet at about 17%.  A new generation of hybrid ships such as the USS Macon Island that can run entirely off an electric motor below certain speeds may have a significant impact on fuel use over the long term.

Although there was a lot of talk about new whiz bang technologies like electrofuels and flexible solar cells what struck me most about the discussion was the Secretary’s ambition to use the Navy’s policies to change how the country consumes energy.  He noted that “Although we defend democracy, we are not one ourselves.  We can set mandates (on energy use)… We can use technologies in ways that cannot initially be done by the private sector.”  The U.S. Government uses about 2% of energy consumed in the U.S.  The Department of Defense is responsible for 80% of government consumption and the Navy is responsible for about a third of that.  So even though the Navy is only responsible for .5% of U.S. energy consumption, they are still a big enough player to affect investment patterns and prices of different technologies.  Secretary Mabus’ statement that “We are going to create a market for alternative fuels,” sounds a lot to me like good old fashioned industrial policy.  The kind of thing that the Chinese continue to engage in with their recent announcement of a national five year plan that includes ambitious energy targets and also the kind of thing that is generally frowned upon by free-marketeers in the U.S.  In some ways the Department of Defense is one of the last bastions of explicit industrial policy in America.  It even has an Assistant Secretary of Defense for Manufacturing and Industrial Base Policy, something you would never see in a civilian agency like the Department of Commerce.  It will be interesting to see if the Navy is able to set the agenda for the entire country reforming the way we produce and consume energy.  They certainly seem off to a good start.

Postscript:  As I am writing this, President Obama has announced in a speech at Georgetown University that he intends for the U.S. to reduce imports of foreign oil by 30% over the next decade.  Changing the consumption patterns of a nation is obviously harder than changing the course of a military service but let us hope that the President can lay out the kind of specifics that the U.S. Navy has been discussing for the past few years as it put forth its own vision of a green military force.

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Cleantech Hacked!

It’s always fun when two of our favorite things come together.  Peanut butter and chocolate.  Mohammed Ali and George Foreman.  Pizza and beer.  This week saw a combination of two of my favorite topics to follow, cleantech and cybersecurity, with exciting stories worthy of a John LeCarre novel.

The Government Accountability Office (GAO), Congress’ watchdog agency that monitors the rest of the government, published an important report about the vulnerability of the smart grid to cyber-attack.  At the same time we rework our electrical grid making it more networked in order to improve energy efficiency we are also increasing the points of entry for those who would seek to do damage our energy infrastructure either for money, ideology, or to engage in warfare.  Perhaps the most significant demonstration of the damage a cyber-attack can inflict on energy infrastructure comes from what is reported to be a combined U.S.-Israeli attack on Iran that physically destroyed uranium enriching centrifuges by exploiting a vulnerability in the Siemens Process Control System 7, a system that is used in energy systems around the world.

The GAO report noted a number of significant challenges.  Many parts of the IT infrastructure being put into the smart grid lack even basic security features such as event logging, which would allow utilities to see when they are being probed or analyze an attack.  The National Institute of Standards and Technology (NIST), which was charged by Congress with developing cyber-security standards for the smart grid, failed to look at ways to safeguard against a combined physical and cyber-attack.  In many cases utilities are merely seeking to meet regulatory standards rather than think through ways to establish a comprehensive security system.  Part of the problem is that government entities often control whether utilities can seek to recoup investments in smart grid technology which leads to underinvestment in cyber security features.

In response to these challenges the GAO recommends that the NIST finalize its cyber-security standards and make sure they include issues that were not previously addressed.  They also recommended that the Federal Energy Regulatory Commission coordinate with state regulators “to periodically evaluate the extent to which utilities and manufacturers are following voluntary interoperability and cyber-security standards and develop strategies for addressing any gaps in compliance with standards that are identified as a result of this evaluation.”  Both agencies agreed with the recommendations.  Retrofitting infrastructure with improved cyber-security features is obviously more difficult and expensive than building it right the first time so hopefully utilities and the government regulators can get their act together as soon as possible before much more smart grid build out takes place without the needed features.

In a creative heist that sounds like something out of Ocean’s Eleven cyber thieves have stolen about $38 million worth of carbon emission credits from the online EU Emissions Trading Scheme (ETS) platform.  The ETS, which traded around $122 billion worth of credits in 2010, was temporarily shut down in response to the thefts.  Member states were urged to improve security of the trading platform last year after a series of smaller frauds but a number of governments failed to do so citing a lack of money for the upgrades.  Analysts have pointed out that one silver lining to all of this is that it demonstrates that people understand that carbon credits are something with real value, at least in Europe.  Pike research in a report about Electric Vehicle Cyber Security shows how similar fraud could potentially be perpetrated through electric vehicle charging infrastructure.

The common theme through all of these reports is that as our energy infrastructure becomes more networked and more high value transactions related to energy take place online we are going to see more criminal activity and perhaps cyber-warfare taking place through our energy systems.  And unless we start taking the design and implementation of security standards throughout this infrastructure seriously we are going to be reading a lot more about spectacular energy related hi-jinks in newspapers and in blogs just like this one.

State Department Announces Plans for New Bureau for Energy Issues

The State Department recently announced its first ever Quadrennial Diplomacy and Development Review (QDDR). Announced with great fanfare by Secretary Clinton, the document lays out amongst other plans Clinton’s intention to establish a new Bureau of Energy Resources in 2011. The stated purpose of the new bureau is to “bring together under a single Assistant Secretary State’s diplomatic and programmatic efforts on oil, natural gas, coal, electricity, renewable energy, transparent energy governance, strategic resources, and energy poverty.”

The QDDR talks a lot about global cooperation on energy issues, not surprising for a document written by diplomats, but what it does not directly deal with is how the new bureau will address international competition for access to resources that is taking place on a global scale. Although we tend to think of the U.S. oil and gas super majors as large players on the world stage the truth is that 88% of oil and gas reserves are controlled by state owned oil companies, mostly in the Middle East. Chinese companies are aggressively competing for access to oil and gas resources around the world and in the last year these companies accounted for one-fifth of all global deal activity in the sector. The Chinese State is offering low cost loans, tens of billions of dollars of infrastructure investment, and in some cases are alleged to be providing payments and other kinds of assistance directly to the families of officials in countries where it seeks access to natural resources. Working with non-U.S. companies that are state owned is often seen as cementing geopolitical alliances in a way that allowing privately held American energy companies access to reserves is not.

Ideas On Energy will be following the formation and activities of this new bureau closely. In the meantime, we would welcome readers’ comments on what they think the State Department should be doing overseas to better promote U.S. energy interests.