Coal in cars: great fuel or climate foe?

Coal companies want to fuel your car and lately, they're getting a lot of political support for the idea.

Turning coal into gasoline-like fuel has several advantages. It would use America's vast coal reserves. It would reduce the nation's thirst for foreign oil and help dampen spikes in energy prices. There's just one problem: It is not "climate friendly" – at least, not yet.

Coal-to-liquids (CTL) fuels could end up emitting nearly double the carbon dioxide that the equivalent amount of gasoline does, mostly because of the way it's manufactured. The CTL industry says new technology will fix the problem. But because such technology is not yet developed, it's unclear whether CTL fuels would be competitive without state and federal subsidies, even competing against high-priced diesel, jet fuel, or gasoline, analysts say.

That's where politicians come in. The National Mining Association has ramped up Capitol Hill lobbying, creating a new coalition and website, Many in Washington are warming to the idea. CTL bills in the House of Representatives and the Senate have received strong backing.

"We have a very good chance of getting legislation passed in this Congress because momentum continues to grow," says Corey Henry, a spokesman for the Coal-to-Liquids Coalition, which includes coal producers and CTL developers. "It's one energy solution that does enjoy broad bipartisan support."

Supporters of the bill range from Sen. Barack Obama (D) of Illinois to President Bush. In his State of the Union speech Jan. 23, Mr. Bush called for the United States to produce 35 billion gallons of "alternative fuel" by 2017. The nation doesn't grow enough corn to meet even half that total. By setting that goal and using the term "alternative" rather than "renewable" fuel, the president was making the case for CTL, some analysts say.

"To me, the president's speech was all about turning coal into liquid fuel," says Gal Luft, executive director of the Institute for the Analysis of Global Security, a think tank focused on energy security.

Global-warming impact

In coal-rich Illinois, Senator Obama's support is more nuanced. Citing energy-security concerns, his bipartisan legislation would grant tax and other subsidies for development of CTL refineries. He also supports separate global-warming legislation that, if passed, would keep carbon emissions from CTL refineries under control, he says. But Obama's CTL bill does not mandate capture of carbon dioxide.

That stance is likely to put him at odds with many environmentalists, who argue that a move to CTL will worsen global warming. Manufacturing and burning a gallon of CTL fuel creates nearly double the greenhouse-gas emissions that a gallon of gasoline does, they say.

"We want more energy security, too, but we're fighting this coal-to-liquids concept because it's just so bad for global warming," says Elizabeth Martin-Perera, a climate policy analyst with the Natural Resources Defense Council (NRDC), a Washington environmental group. "It takes us from the frying pan into the fire."

Plans for US plants

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.

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.

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