Bert Caldwell: Battle over coal-to-liquid fuels more controversy

Remember the Energy Bill, the one Sen. John McCain derided as the “No Lobbyist Left Behind Act” because it was so pork-laden?

Well, seems some lobbyists were left behind when the embattled bill finally passed in 2005. But the coal folks are back with a vengeance, and have they got some snake oil for us. Coal-to-liquid, or CTL, is just the tonic for our gas pains, supporters say.

All they need is a little help from Uncle Sam.

The pitch is energy independence. The United States is the Saudi Arabia of coal. Estimates of U.S. reserves, consumed at the present rate, take the country out some 250 years. Coal-fired generating plants produce about one-third of the nation’s electricity.

But coal combustion is also one of the reasons the United States is the Saudi Arabia of greenhouse gases, although China is challenging for the title. The Bush administration refuses to take its cue from other developed countries working toward reducing their emissions.

Coal-to-liquid, or CTL, would do nothing to clean up our reputation.

There’s nothing revolutionary about the technology. Two Germans, Franz Fischer and Hans Tropsch, developed the process in the 1920s. Without fuels produced using their technology, the Nazi war machine would have been immobilized long before its ultimate surrender.

The process has been refined over the years — South Africa relied on CTL for years — but most of the world has relied on abundant, cheap crude oil to fulfill energy needs. The cheap stuff is gone, and the coal industry is trying to exploit hysteria about high gasoline prices with a push for CTL subsidies.

CTL fuel, created using coal, steam, heat and catalysts, burns clean, if not cleaner than regular gasoline. But carbon dioxide emissions are slightly higher.

The bigger problem is the manufacturing process itself. First, because of the fuel consumed to produce heat and, second, because of some of the byproducts, including more CO2. Those gases can be captured and injected deep into the ground, a step called sequestration, but at significant cost.

Plans already on the drawing board do not provide for sequestration.

The companies want loans that fund plant construction to be federally guaranteed, a tax credit for every gallon produced, price supports, and a 25-year supply contract with the U.S. Air Force.

Without these measures, officials say, CTL developers will not have the certainty they need to commit billions to plants whose economic feasibility would otherwise ride on the whims of OPEC members.

What taxpayers will have is the certainty of huge bills for the subsidies and price supports, and the risk the plants will not generate returns to repay investors. And, so far anyway, nobody seems to be suggesting taxpayers get any of the benefit if CTL plants prove to be extremely profitable, something a new U.S. Department of Energy study says is quite possible.

If the price of oil is $61 a barrel, a CTL plant producing 27,819 barrels of diesel per day and slightly smaller volumes of other liquids would generate a return on investment of almost 20 percent. The debt for such a $3.6 billion plant would be retired in five years.

Even at $37 a barrel, the return on investment is 10 percent.

Last week, the Senate Energy and Natural Resources Committee rejected a bid to add coal-based fuels to a bill intended to throw more federal support behind renewable and alternative fuels, and cleaner, more efficient cars, and revoke some of the absurd subsidies for profit-rich oil companies.

But the party-line vote against CTL — Democrats against, Republicans for — belies the measure’s broader support. Democrats like Montana Sen. Tom Tester voted nay, but only to see a bill get out of committee to the Senate floor.Sen. Maria Cantwell, D-Wash., who sits on the Energy Committee, opposes CTL.

The fuel, she says, “is not getting us where we need to be in terms of alternative energy supply.”

But Cantwell says she is unsure she and other foes can turn the measure back.

“It will be a hotly debated issue on the Senate floor,” she says.

The DOE study, by the way, was based on a plant built in southern Illinois. Democratic presidential candidate and Illinois Sen. Barak Obama is typical of those lawmakers, like Tester, who want limits on greenhouse gases, but represent coal-rich states that would benefit from CTL production.

So, that Senate debate may shed some light, not just heat, on how dear environmental issues are to several of the presidential contenders.

Business columnist Bert Caldwell can be reached at (509) 459-5450, or at bertc@spokesman.com.