Last month, the U.S. Navy deployed its “Great Green Fleet” for the first time: an entire carrier group powered by 77 million gallons of tallow-derived biofuel supplied by California alternative-energy pioneer AltAir Fuels. Even more remarkably, the Navy paid just $2.05 a gallon for the fleet’s inaugural delivery of eco-friendly fuel. “Even in these times of low oil prices, that’s cost-competitive. And that’s 13 times less expensive than just four years ago,” noted U.S. Secretary of the Navy Ray Mabus at a dockside ceremony.

The day the fleet set sail marked the culmination of the Navy’s controversial seven-year push — underpinned by a $510 million joint investment by the Navy, Department of Energy, and Department of Agriculture — to turn home-grown biofuels into a viable alternative to imported fossil fuels. It also highlighted the U.S. military’s increasingly important role as the patron saint of advanced biofuel companies, many of which are now dependent on the Pentagon’s largess to fund their development efforts — and on the promise of large military contracts down the road to help them attract private investments.

The Department of Defense makes procurement decisions on a vast scale, and is the world’s single largest energy consumer, so its interest in biofuels “sends the signal to industry that a large demand is there,” says Michael Domen of the Defense Logistics Agency Energy. Between 2007 and 2014, the Pentagon bought about 2 million gallons of advanced biofuel for testing purposes, at a cost of around $58.6 million, according to the GAO. That’s small potatoes compared to the $107.2 billion the agency spent buying 32 billion gallons of conventional fuel over the same period — but it’s still a big deal for a fledgling industry struggling to establish its path to profitability. And better days lie ahead: the Navy aims to derive 50 percent of its energy from alternative sources by 2020, which would require the use of 336 million gallons of alt-fuels every year, and the Air Force is targeting a similar rate of biofuel use by 2025.

Along the way, the military’s investments in biofuels are spurring the development of new private-sector markets, in a manner “analogous to what the military has done with other technologies such as Global Positioning System (GPS) or the Internet,” according to a 2012 Environmental Entrepreneurs report. The knock-on economic benefits of the U.S. military’s biofuels programs, the report estimates, will amount to between $9.6 and $19.8 billion by 2020, while generating up to 17,000 new jobs.

The military’s demand for biofuel has also been credited with helping advanced biofuel companies to win an additional $3.4 billion in private capital between 2007 and 2012, both by creating an established market for their products, and by giving specific technologies and feedstocks the military’s seal of approval. “We are in the role of technology watcher as we follow … developments in the civilian world and look for ways to leverage those efforts,” says Kevin Geiss, deputy assistant secretary of the Air Force for energy.

One of the big benefits of military spending on alternative fuels is that once the Pentagon decides a technology has strategic value, it’s unlikely to be dissuaded by trivialities such as technical hiccups or fluctuating commodity prices. The post-fracking glut of cheap natural gas didn’t dampen the military’s appetite for biofuels, and the military’s long-term goals are providing a degree of stability for companies that would otherwise be dependent on uncertain federal subsidies and volatile market conditions. “They are … smart enough to realize that these options can’t just be turned on like a spigot,” explains Patrick Gruber, president and CEO of Gevo Inc., which supplies biofuel for Navy F/A-18 combat jets. “It takes massive amounts of technology, investments, infrastructure, building capital in a plant in order to make it happen. It’s a long-term game.”

So far, a relatively small number of companies are directly working with the military on biofuel projects, in part because of the military’s demanding standards for scalability and cost-effectiveness. Still, for companies that can catch the attention of the military’s procurement and R&D teams, and live up to their production and quality standards, defense dollars can make an enormous difference. For everyone else, the military’s vote of confidence in advanced biofuels is stoking investors’ interest in the sector, and driving firms to make their products more reliable, scalable, and cost-competitive. “The military has bought in to alternative energy. It is their idea now. That makes a big difference,” says former Secretary of Defense Bill Perry.


Companies to watch

*   Emerald Biofuels is in the process of building a $175 million biofuel refinery on the Gulf Coast that will turn waste fats into military-grade fuel at a cost of less than $3.50 per gallon. Production is expected to begin this year.

*   Fulcrum BioEnergy, a major biofuels player thanks to a strategic partnership with United Airlines (NYSE:UAL),has won a Department of Defense contract to establish a biofuel plant in Nevada using municipal waste as its feedstock.

Red Rock Biofuels, already a supplier of biofuel to major commercial players including Southwest Airlines (NYSE:LUV) and a FedEx (NYSE:FDX) subsidiary, was recently awarded a $70 million joint grant from the DOE, USDA and the U.S. Navy to help fund construction of a woody biomass refinery in Lakeview, Oregon.

Ben Whitford is the US correspondent for The Ecologist. He has written for the Guardian, Newsweek, Mother Jones, Slate, and many other publications.