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Impact of Consumption and Cost Forecasting on United States Defense Fuel Budgeting

Between 2000 and 2011, Department of Defense (DOD) annual fuel expenditures were between $1 and $9 billion higher than budget estimates (excluding 2009, when DOD underestimated fuel expenditures). Fuel budget variance is generally attributed to increasing fuel prices. However, DOD fuel expenditures are driven by two parameters — the unit cost of fuel and the amount of fuel consumed. Cost variance was responsible for 80 percent of the fuel budget variance on average. Crude oil price increase drove most of this cost variance. Consumption variance was responsible for the remainder of the fuel budget variance, and was particularly important during initial wartime operations in Afghanistan and Iraq. Consumption variance was driven by DOD's planned use of emergency rather than base appropriations to pay for overseas contingency operations. Both increasing fuel prices and reliance on emergency appropriations puts defense operations at risk and increases costs to taxpayers. Improvements to current planning, budgeting, and financing practices are needed to manage this risk.