Energy Security Strategies of the Department of Defense

Volatile fuel prices, national security concerns and increasing budget pressures have elevated the issue of energy efficiency within the U.S. government, and particularly at the Department of Defense (DoD). Last year alone, the Pentagon spent $15 billion on energy, where 75 percent of that cost was operational. Across the department, the branches are exploring alternative energy supplies that could potentially reduce costs and stabilize fuel access and security. The 2007 National Defense Authorization Act requires that 25 percent of DoD’s total electricity come from renewable sources by 2025. Tune in as our guests discuss the energy strategy of the DoD and whether alternative energy supplies could potentially reduce costs and stabilize fuel access and security.

Audio file:

Guests:

• General Charles F. Wald, Director and Leader of Deloitte's Department of Defense Practice, Federal Government Services, Deloitte Services LP
• KC Healy, Director, Federal Energy and Resources Management, Deloitte Consulting LLP

Transcript

Jane Norris: Welcome to FedCentral, brought to you by Deloitte, a program where executives and federal government leaders talk about the issues and initiatives that are making a real impact on the business of government today, to help government help America. We welcome General Chuck Wald, Director and Leader of Deloitte's Department of Defense practice to the show today, and also KC Healy. He is a Director in Deloitte Consulting and Federal Energy Management and Sustainability practice. We thank you both for joining us today. 

We're going to be talking about energy and sustainability, so it's a natural that you would both be here with us today. Also want to just give a little background on both of you so people know who they're listening to.

General Wald is responsible for providing senior leadership and strategy in relationships with the Department of Defense practice. He is a subject matter specialist in weapons procurement and deployment, counter-terrorism, national energy, and international security policy. He is a specialist on energy security and General Wald retired from the US Air Force as a four-star general after serving over 35 years in the US military as a command pilot with more than 3600 flying hours and 430 combat hours. 

Also, KC Healy. He is, of course, in our Energy Management and Sustainability practice at Deloitte. He has 25 years of experience in the energy sector including 15 years consulting at Deloitte and 10 years in industry. During this time, KC has served clients in the areas of alternative energy, business and IT strategy development, business process engineering, talent and resource management, and stakeholder engagement and portfolio planning and management. Thank you both for joining us today.

KC Healy: It's good to be here.

General Wald: Thank you.

Jane Norris: Today gentlemen, talking about energy strategies for the Department of Defense. So General Wald, give us an overview of where the energy strategy stands today.

General Wald: Sure. I think the big thing is the Department of Defense uses a lot of energy. On the other hand, it's only a fraction what the United States uses on a daily basis. So there's a real understanding of what that really means to the Department of Defense. Maybe it's on perspective, but the Department of Defense uses about 1.7 percent of all the energy in the United States on a daily basis, which seems like a small number. On the other hand, in 2008 when we had the spike in oil prices that went up to around, somewhere just shy of $150 a barrel, the Department of Defense spent an additional $11 billion that year on energy costs, which was un-programmed. So just from a cost standpoint, it's hugely important.

Number two is obvious, we can't do much in the military without energy or fuel, so it's a security issue as well, and probably thirdly much of our energy comes from places in the world that aren't necessarily in agreement with us. Ninety percent of all the fuel in the world is nationally owned and many of those countries don't really agree with our foreign policy, so there's a national security imperative there for the Department, as well. It's a very complex issue. It's not easy to resolve, but I think there are some solutions we can talk about later.

Jane Norris: KC, we do have an energy policy that the Department of Defense has announced and they plan to operationalize. Talk to us a little about that plan.

KC Healy: The OSD has published energy strategies. Each of the services have their own energy strategies, and they all sort of agree on the same thing –that energy is a critical asset. It needs to be actively managed. It needs to be protected, and it needs to be conserved, and I think that we're starting to see these policies and strategies starting to converge, even though their publishing separate strategies, they're all very much on the same themes and the same sheet of music.

Jane Norris: General Wald, how do we then implement a plan that really gets to the heart of alternative energies being used, in forward operating bases or bases here in the United States, perhaps even in an aircraft?

General Wald: Well, KC kind of alluded to this, but it's a confluence of different situations or issues that are coming together at one particular time. One is our national debt has made us focus more on how much money we do spend. The Department of Defense’s budget is going to be under pressure to decrease how much we spend. There's also the imperative of human life in Afghanistan and Iraq, but many of our casualties are incurred in convoys, many of those convoys are carrying liquid, either water or fuel, to the battlefield, and that fuel becomes not only expensive from the standpoint of dollars but human life, and three is there's an executive order out today that says the agencies and the government need to start looking at their carbon footprint. So you add those three imperatives together and it starts I guess demanding a policy.

On the good side, the Department has appointed a director of operational energy who plans the policy. That's Sharon Burke, and she will be, in a broad sense, developing a strategy for the Department. The services also have very active energy programs that are lead by senior officials in those services. So I think the attention is there now. It's just a matter of putting that policy into effect.

KC Healy: Right, and you mentioned the OSD policy for operational energy, and it's based on three major themes. One is more fight with less fuel. So the focus there is to reduce the overall demand, since that's one good way of improving energy security. It's just simply to use less of it. The other [pillar] it's built upon is the idea of options. More options create fewer risks. If I'm not tied to one source, if I’m not tied to one location where I have to find it, then I have better versatility in terms of, how I want to employ my energy. You know, if somebody shuts off my supply here, I can go there. That's a great way of improving your security, and then they're also focusing on building capability to lower the overall costs. So nobody wants to simply dictate that we'll use less fuel. A better approach is to build it into the acquisition process so we design and acquire equipment that has the same capabilities but is built to use less fuel. So I think that's a very far-reaching, long-term vision that they're putting into place.

General Wald: I'd just add to that I think it's important to note that from a diversity standpoint, as KC pointed out, we can internally diversify from the United States standpoint. We now have a large discovery of shale gas, or at least the technology to get to that shale gas. There are certain issues they have to work to get there, but our own crude oil that we have on our continental shelf and in other places in the United States, and there's an issue of safe drilling, and then you add alternatives, renewable energies of wind or solar, things that can displace some of the petroleum we're using now. 

The problem with sustainables like wind or solar is that today in the United States, it only makes up around 1-2 percent of all the energy we use. There's a long ways to go there, but I think the appealing thing to me about having more of a domestic ability to develop our own energy capability is that it gives us a little bit more security from the standpoint of disruptions and it lets us control our destiny a little bit more from a security standpoint. 

Jane Norris: Are there legislative and policy roadblocks to making this happen? Where does that stand? Does Congress have a role in all this?

General Wald: I don't think I can emphasize enough that it's all about leadership and will. We have the technology. We have the natural resources if we do it right. Now it's a matter of implementing policy and leadership, I'm kind of a half full glass kind of guy, so I think because of the situation we're in today from a national debt standpoint, from a geopolitical standpoint globally, and the other imperatives about the understanding of how much energy we do use in both combat and peace time. That those confluences of activity are going to come together now and I think we'll have the right leadership to start addressing it, but again, it's going take national leadership to make this happen.

KC Healy: Right, and an example of national leadership that's already been put into place is the Energy Independence Security Act of 2007, which stipulates energy savings, conservation, improving implementation or the uptake of biofuels. It directs that the federal government be more sustainable in terms of their energy use. I mean, there's a whole series of provisions there that direct both the federal government to be sort of energy sustainable with respect to energy but it also starts to establish goals, targets, and visions for the country, as a whole, it starts to bring together some leadership direction, and I think the President's recent endorsement of biofuels as a new form of transportation fuel for the US is another example of somebody getting out front and setting the pace.

Jane Norris: So that's something relates to cost, but there's also a security issue involved in all of this. Why don't you talk a little about that? 

General Wald: Well, I think if you look at one of the major sources of our energy, which is the Middle East—you could argue why we have a presence there. There are different reasons people could argue, but one of them has to do with the fact that much of our energy or resources come from the Middle East, and so the assurance that we can have that energy is part of our national security strategy. If you look at the Rand study that came out in 2010 that looked at how much money United States government spends on military presence in the Middle East, and this is minus the Iraq conflict that we're in now or Afghanistan, it was somewhere between $65-85 billion a year. That money is actually translated directly to the taxpayer and in some ways is directly translated in how much we spend at the pump, you could look at that number and you could say in the United States, we're paying about $9 a gallon for gasoline. Well, that's an imperative on its own. 

From a military perspective, the assurance that we can actually operate our military forces, that those forces will have an adequate and appropriate amount of fuel available wherever we go worldwide is, I think, imperative enough. Lastly, I think the fact that the rest of the world, whether we like it or not, is moving toward a carbon based economy. Europe, in 2012, is going to start charging for carbon and transportation. When we operate there, we're going to have to pay for that, so we're being driven down this road of alternative fuels and more efficiency and more economy.

KC Healy: Just to pick up on the point you made about the transaction costs of buying fuel from overseas sources—we tend to focus on that $300 billion a year number, but there've been studies that show that the impact on the US economy is probably three times that. So if you look at the transfer costs of the money that's being sent overseas and then the lost economic opportunity here in the US of what that $300 billion might have done, then really, you're starting to talk about our overseas dependency might cost us a trillion dollars a year. That's a pretty significant number, and then when you think about it from the perspective of national security or national energy policy, that trillion dollar number creates some pretty advantageous business cases when you start to explore alternatives to that.

To read more, the full radio transcript is available.