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Coal in cars: great fuel or climate foe?

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At least nine coal-to-liquids facilities are now in the planning stages, including one each in Illinois, Pennsylvania, and Wyoming that already have significant funding lined up and are slated to begin production by 2009, according to the National Energy Technology Laboratory.

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If all nine plants were built, they could produce about 3 billion gallons of fuel a year – not enough to meet the president's goal. But if federal tax incentives and state subsidies kick-start the industry, coal-based fuel production could soar to 40 billion gallons a year by 2025 – or about 10 percent of forecast oil demand that year, the National Coal Council reported to the Department of Energy (DOE) last year.

A key question is whether those plants will capture the greenhouse gases they produce and bury them underground. If they don't, the plants will pump millions of tons of CO2 into the atmosphere annually, environmentalists say. Even if gases were pumped underground, CTL fuel, when burned in an engine, would still send about 8 percent more CO2 skyward than a gallon of gasoline, a landmark 2003 Princeton University study found.

Storing or capturing carbon dioxide

But CTL supporters say the industry would produce "clean fuel" that helps the environment by putting out fewer smog-forming nitrous oxides and other chemicals than regular diesel fuel. If 85 percent of CO2 from coal-to-liquid refineries could be captured and stored, CTL diesel fuel would then have about the same emissions as a gallon of regular diesel, they say.

"By the time this first fleet of CTL plants is constructed, that technology will be there and we'll be using it," Mr. Henry says.

Such a promise was called into question in a DOE environmental impact filing in December, which reported that a leading CTL development had no near-term plan to capture any of the 2.3 million tons of CO2 it would produce annually. The $800 million project, which would make 5,000 barrels of CTL fuel a day in Gilberton, Pa., is part of an industry push where CO2 capture costs are frequently not factored into the bottom line of the business plan, Wall Street analysts say.

"The price estimates cited by industry proponents assume facilities are uncontrolled for CO2 emissions," write Christine Tezak and K. Whitney Stanco of the Stanford Group in a December report. Investors should beware of "the increasing likelihood" that the US could establish emissions controls, so that "any large investment in CTL would need significant subsidies to offset environmental costs," the reports says.

High capital costs – $1 billion to $6 billion for a single facility – and the unknown cost of carbon sequestration could make such projects unappetizing for investors to swallow without federal incentives.

States are offering subsidies as well. Montana, West Virginia, and Pennsylvania passed measures to lure CTL plants. Pennsylvania Gov. Edward Rendell last month called on Bush to restore a $100 million no-interest loan for the Gilberton project. The loan, promised in 2003, he said, is not in the 2008 DOE budget.