Managing Military Energy for Greater Cost Effectiveness
Michael E. Canes
Distinguished Fellow
Logistics Management Institute
(703) 917-7201
[Format: single space, 10 point font, Times New Roman]
Overview
The energy economy within which the U.S. military operates is different from that of the civilian sector. Energy is needed to support combat operations, but that energy has to be delivered to where such operations take place, sometimes in the face of active enemy opposition. The delivered cost of energy to combat forces therefore tends to be much higher than that elsewhere, leading to a different economic calculus. Energy efficiency and alternative sources that might not be economic in the civilian economy may have large payoffs within the military. For years the Department of Defense did not recognize the difference, but since 2001 it has increasingly done so. A number of innovative energy initatives are being undertaken by each of the military services, both to curb demand and to augment supply. More effort also is being made to measure energy usage, by type of use.
A danger exists, however, that in some instances the DoD may push further than is warranted by economic criteria. Commercial and political forces may seek to take advantage of the unusual economics of defense energy to justify investments that are neither cost effective nor particularly helpful to military operations. Ongoing care will be required to discipline investments and to direct them to where they are likely to have the highest payoff.
Methods
Two studies by the Defense Science Board pointedly informed the Secretary of Defense that the Department was neglecting the true cost imposed by energy logistics on military operations abroad ( DSB 2001, DSB 2008). They pointed out that the traditional military method of treating logistics, which assumes that they will arrive when and where needed, was leading to excessive costs for U.S. operations in Iraq and later in Afghanistan. These costs consisted not only of the use of massive logistics resources, but loss of life, equipment and fuel as supply trains were disrupted, and to loss of operational effectiveness as defense assets such as soldiers, armored carriers and helicopters were diverted to convoy protection. Real world experience of these losses led in-theater military leaders to demand that something be done to reduce them.
The Defense Department (DoD) took several years to fully understand the point, but once operational experience verified its importance the Department began to respond. It now has developed estimates of what is called ‘the fully burdened cost of fuel’, which incorporates logistics and other related expenditures. We describe how the fully burdened cost is calculated, and what sorts of numbers have resulted.
Under Congressional guidance, the DoD also has organized itself internally to deal directly with energy matters. There now exists an Assistant Secretary of Defense for Operational Energy Plans and Policies (ASD-OEPP), and comparable offices within each of the armed services. OEPP gathers data on all operational energy initiatives within the Defense Department, and is responsible for certifying to Congress that adequate resources are being devoted to ameliorating the problem. The latest certification document reviews DoD operational energy initiatives for Fiscal Year 13 (DoD 2012). We describe some characteristics of this database including the magnitude of what is being spent and what sorts of initiatives are contained within it. We do this for each of the military services and by category of initiative. We also suggest which initiatives are likely to have the highest energy-related payoff for the Defense Department over time.
Results
Our results show that across the DoD annual spending on operational energy initiatives is between $1 and $2 billion, about 10 per cent of what is spent on fuel. Each of the services is sponsoring multiple initiatives, aggregating to a few hundred over the entire Department. Most of the initiatives are aimed at energy demand reduction, but some seek to augment supply and a few are devoted to measurement and planning.
Investment in new defense-related capital equipment such as weapons platforms or their components tends to have the highest returns in terms of energy saved. However, the replacement of capital equipment tends to be quite expensive, and therefore may not always be the most cost effective choice. Also, alternative sources of energy can provide a useful supplemental source under certain conditions, but because they supply relatively small quantities of energy they cannot fully resolve in-theater energy challenges.
Overall, the direction of change within DoD is towards more energy efficient military operations, with increased operational effectiveness the likely result. However, constraints such as limited capital budgets are an impediment to cost effective investment in at least some instances. Also, there is sometimes a tendency for private and political interests to take advantage of the unusual economic calculus of defense energy to advocate projects with questionable returns. Also, policy makers sometimes are tempted to ask DoD to take on energy projects which may have national benefits but are not particularly useful for military purposes.
Conclusions
Differences in the energy economy faced by the Department of Defense have led to a wide number of innovative approaches to conserving energy and to producing alternative forms. However, the Department still possesses a large amount of legacy equipment purchased before these differences were fully recognized. For that reason, there appear to be large gains possible in acquiring new capital equipment to replace what is currently being used. Over time, it should be possible for DoD to significantly reduce its use of energy in combat operations, and to supply an increasing percentage with alternative forms. However, certain non-market constraints likely impede DoD from taking advantage of all the cost effective investments available to it. Also, it is necessary to discipline DoD energy investment with well-defined criteria to maintain its operational focus and to assure that resources are used wisely.
References
Defense Science Board, “More Capable Warfighting Through Reduced Fuel Burden,” May 2001.
Defense Science Board, “More Fight, Less Fuel,” February 2008
Department of Defense, “Energy Investments for Military Operations for Fiscal Year 2013”, June 2012.