Washington (Platts)--29Nov2012/539 pm EST/2239 GMT

The US Senate on Thursday voted 54-41 to reverse a plan included in a larger defense policy bill that would have ended the Department of Defense's participation in an agreement aimed at boosting the supply of biofuels available to the military.

The vote came one day after the Senate agreed, by a 62-37 vote, to remove a related provision from that bill that would have barred the US military from buying alternative fuels that are more expensive than petroleum-based fossils fuels, including jet fuel and diesel.

Both provisions the Senate voted to reverse this week were included in the National Defense Authorization Act when the bill was marked up by the Senate Armed Services Committee in May.

The vote Thursday would preserve an agreement signed in August 2011 by the secretaries of the departments of Agriculture and Energy and the Navy that called for a $510 million investment to help the biofuels industry build or retrofit commercial-scale biorefineries. The agreement calls for matching investments from private industry.

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An amendment included in the bill during markup prevented the Defense Department from participating in that agreement.

Senator Kay Hagan, a North Carolina Democrat who introduced the amendment this week to retain Defense's participation in that $510 million agreement, said investment in the biofuels industry was needed to reduce costs to the military and enhance energy security. Defense, which spent $17 billion on fuel in fiscal 2011, sees a $100 million cost increase when the price of oil goes up $1, Hagan said.

"Developing a commercially viable biofuels industry could help [Defense] diversify its fuel sources and reduce the risk of energy volatility," Hagan said in a Senate floor speech. "[D]iversifying our energy mix will also help protect our military from the costs associated with price spikes in oil. Sudden energy cost increases force [Defense] to reallocate finite resources away from long-term priorities."

Senator James Inhofe, an Oklahoma Republican who originally sought to prevent Defense from participating in the agreement, said Thursday that the Pentagon should not be in the business of building or retrofitting biofuels plants, particularly since he said these funds are being diverted from military operations. He said biofuels investment should be done exclusively by private industry and non-Defense agencies since using defense funds for this program could create a "combat readiness problem" for the military.

Inhofe said Hagan's amendment would for the first time allow "scarce" Defense funding to be spent on building and retrofitting biofuels plants, which he said should be in the purview of the Energy and Agriculture departments.

Three Republicans, Senators Susan Collins of Maine, Charles Grassley of Iowa and Richard Lugar of Indiana, voted for Hagan's amendment Thursday. Only one Democrat, Senator Jim Webb of Virginia, voted against it. The House version of the defense bill includes language barring the military from buying more expensive biofuels, which was reversed in the Senate version of the bill Wednesday.

Those differences will need to be resolved during a conference committee on the two bills.

But the House version of the bill does not contain any limitations on Defense spending on retrofitting or building biofuels plants as the Senate version does.

--Brian Scheid, brian_scheid@platts.com
--Edited by Jason Lindquist, jason_lindquist@platts.com

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