The Senate passed an amendment to the defense bill Thursday that would strike the prohibition on biofuel refinery construction.

The amendment allows the Department of Defense to invest in refineries for “advanced” biofuels through a joint Agriculture, Energy and Navy Departments agreement.

Sen. Kay Hagan (D-N.C.) introduced amendment 3095, which passed on a 54-41 vote. She said the military’s reliance on oil subjects it to price shocks.

The federal government aids the development of advanced biofuels with $510 million of funding through the Defense Production Act. The act, which includes an industry match, aims to reduce the military’s dependence on foreign oil by strengthening the domestic fuel industry.

Hagan said the Defense Production Act is essential for developing a domestic energy industry that could unchain the military from oil and make budgeting more predictable.

“Cost overruns could force the military to curtail training and less urgent operations — resulting in increased risk to future missions. Developing a commercially viable biofuels industry could help DOD diversify its fuel sources and reduce the risk of energy volatility,” Hagan said on the floor Thursday.

The biofuels the Defense Production Act supports are made from non-edible feedstocks, such as algae and switchgrass. Advocates say those fuels could provide a sustainable way to power the nation’s vehicle fleet.

But those fuels have not reached commercial scale, and many lawmakers are calling on the government to abandon the technology.

Production of advanced biofuels has barely made a dent in targets established in the Energy Independence and Security Act of 2007. That has made the fuels, and the mandate that promotes their production, the subject of criticism from the petroleum industry and lawmakers on both sides of the aisle.

The biofuels community says the global recession stunted investment in those technologies. It contends advanced refineries are just now starting to reach commercial production levels.

Agriculture Department support has been key for scaling up those refineries. Agriculture has devoted funding and research to biofuels through other programs as a way to create rural jobs.

Still, some Republican senators said the military should not be a venture capitalist for energy technologies. Sen. James Inhofe (R-Okla.) said such spending deserves greater scrutiny with $500 billion of defense cuts slated for the next 10 years as part of sequestration.

“[The Navy’s] operation and readiness funds are stretched to a maximum,” Inhofe said. “If you keep giving out a 100 million dollars here and there, that’s coming out of our readiness.”

Republican Sens. Susan Collins (Maine), Chuck Grassley (Iowa), Mike Johanns (Neb.) and Dick Lugar (Ind.) voted with Democrats for the amendment, while Sen. Jim Webb (D-Va.) opposed the amendment.

The Senate also passed an amendment requiring the Veterans Administration to create a plan on how to deal with its backlog of veterans’ claims. Sen. John Cornyn (R-Texas) introduced amendment 3158 and it passed on a 95-0 vote.

The Senate is schedule to continue amendment work on the National Defense Authorization Act, S. 3254, on Thursday, with hopes of finishing work by the end of the week. The defense bill funds U.S. military operations.