Less than one week after the U.S. Department of Agriculture and Department of Energy announced loan guarantees in support of two major biofuel facilities in the Southeast, the RAND Corp. released a report stating that the U.S. military should back off its research and investment in alternative fuels because "there is little promised benefit over using fossil fuels."

The report set off a heated debate, especially at a time when Congress is looking for programs to cut in the Spending Reduction Act of 2011. Congress will soon review the DoD-commissioned RAND report. It especially upset some biofuel champions within the U.S. Department of Defense, which has set ambitious goals to reduce reliance on petroleum-based energy.

The Navy alone plans to produce 50% of its shore-based energy from alternative sources by 2020. During a conference call with journalists Tuesday, Tom Hicks, Deputy Assistant Secretary of the Navy for Energy, criticized the report.

“I would say this doesn’t necessarily represent RAND’s best work,” Hicks said. “It reads more like opinion than necessarily research found in active engagement with those leading in the (biofuel) industry.”

Calls to RAND’s media relations office were not immediately returned. According to the report, the DoD is focused on proving technical viability of biofuels when it should instead be able to demonstrate affordable and environmentally sound production of alternative fuels based on algae and seed crops like camelina. It said the DOE’s research in fuel cell and solar photovoltaic technology development have proven that is “notoriously hard to accomplish.”

“The Department of Defense consumes more fuel than any other federal agency, but military fuel demand is only a very small fraction of civilian demand, and civilian demand is what drives competition, innovation, and production,” James Bartis, lead author of the study and a RAND senior policy researcher, said in the report. “Further, we found that testing and certification efforts by the military services are far outpacing commercial development.”

Hicks said the authors failed to contact members of the biofuel industry and the investors who are funding its development.

“We are confident, beginning in (2012 through 2016) that we will start to see the emergence of a mature biofuels market that can compete … with petroleum … without necessarily requiring subsidies,” Hicks said Tuesday.

The RAND report came less than a week after the USDA and DOE announced loan guarantees for major biofuel plants. The USDA notified Coskata Inc. last week that the agency would provide the renewable fuel developer with a $250 million loan guarantee to support construction of a 55-million-gallon-per-year cellulosic ethanol facility in Greene County, Alabama.

“Today’s announcement by the USDA sends a clear message about the Administration’s commitment to advanced biofuels, and provides further validation that Coskata’s technology is ready for commercial scale,” William Roe, Coskata’s chief executive officer, said in a prepared statement.

On the same day, U.S. Energy Secretary Steven Chu announced a $241 million loan guarantee for Diamond Green Diesel, LLC, a proposed joint venture between Valero Energy Corp. and Darling International Inc. The loan guarantee will support the construction of a 137-million-gallon-per-year renewable diesel facility in Norco, Louisiana. It will use waste grease, tallow and animal fat.

Construction is set to begin in September, and the plant will be located next to an existing Valero refinery about 20 miles outside New Orleans. Valero spokesman Bill Day said his company has invested “millions” in developing technologies that use algae, cellulose and animal fat.

“We’ve made a lot of investments in different areas because we realize that renewable fuels will be part of the fuel mix going forward,” Day said.

Still, it remains to be seen whether the advanced biofuel industry can deliver prices per gallon that are competitive with gasoline, ethanol and diesel. Paul Winters, spokesman for the Biotechnology Industry Organization, said the recent loan guarantees were made, in large part, because those industries have already demonstrated to the DOE and USDA that they can generate prices close to $2 per gallon.

“Algae is sort of the second wave after cellulose, so it’s expected to be competitive with gasoline within a couple years,” he said. “However, fluctuations in the price of oil over the next couple of years may cloud that picture.”

Michael J. McAdams of the Washington-D.C.-based Advanced Biofuels Association said the advanced biofuels industry is at a crossroads. Corn-based ethanol, the first generation of biofuel, had political support for farmers, so it was able to develop over 25 years with assistance from tax credits. The advanced biofuels aren’t rooted in the same politics, but the military’s championing of the technologies has been crucial in its rapid expansion, McAdams said.

“The military sent a big signal to the commercial industry that this technology is verifiable and useful,” he said.

Hicks said the Navy will continue with research in development in algae and other advanced sources. Lt Col Melinda F. Morgan, a DoD spokeswoman, said the military remains committed to alternative energy because it helps reduce energy risks associated with traditional sources.

“The RAND report will be reviewed by our new ASD for Operational Energy as that office works to improve the Department's strategic approach to mitigating energy challenges,” Morgan said.

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