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Coal-To-Liquids, Climate Change, and Energy Security

By Jeff Logan and John Venezia

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On May 2nd, the Senate Energy and Natural Resources Committee marked up the first major energy bill of the new 110th Congress. As of May 13th the bill includes incentives for biofuels, energy efficiency, and carbon capture and sequestration (CCS). At one point the Committee considered--but ultimately rejected--a mandate for coal-to-liquids (CTL) fuels. Nonetheless, the provision will likely be reintroduced when the bill comes up on the Senate floor, so it's worth examining the implications that CTL might have for both energy security and climate change policy.

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CTL is a technology that converts coal from a solid to liquid fuel. It is gaining attention in the U.S. as an option to offset the need to import oil. The final product, often referred to as synthetic diesel, has no sulfur and burns more cleanly than traditional petroleum diesel. The South African company Sasol has commercialized the technology over decades of strong government backing. A similar package of long-term incentives would likely be needed for CTL to play a significant role in improving U.S. energy insecurity.

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The CTL provision in the Senate markup would have created a mandate of 21 billion gallons of CTL fuels by 20221. For comparison, the existing federal mandate for ethanol requires the use of 7.5 billion gallons by 2012. To address concerns that CTL is a step backward on global warming, another provision stated that the greenhouse gas emissions levels of CTL fuels should not exceed that of conventional gasoline.

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U.S. coal supplies are abundant. In theory, CTL could help to offset some of the negative impacts of oil import dependency including supply uncertainty, wealth transfer to unstable or hostile regimes, and larger geopolitical maneuvering. There are, however, significant trade-offs in promoting its use as a substitute for petroleum. Consider that:

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  • CTL results in greater CO2 emissions than petroleum, even if CCS is used. Lifecycle greenhouse gas emissions from CTLs, which include all emissions from "coal mine" to "vehicle wheel," are nearly twice as high as petroleum alternatives. The proposed legislative standard that "greenhouse gas (GHG) emissions of CTL fuels shall not exceed those of conventional gasoline" refers only to the "tank to wheel" portion of emissions. The "mine to wheel" portion is not addressed in the standard. Carbon capture and sequestration can mitigate most of the "mine to wheel" emissions, but the final GHG profile is still higher than "business as usual" petroleum.

  • CTL is expensive. Construction of CTL facilities requires multi-billion dollar investments for large plants. Due to technology risk, and uncertainty over global oil prices that serve as a benchmark for CTL competitiveness, investments are not likely to flow without significant government subsidy and guarantees. CTL plants risk becoming stranded assets if global crude prices fall. This happened in the late 1970s and early 1980s with shale oil and other energy security investments.

  • CTL uses water unsustainably. In addition to the usual social and environmental problems associated with coal mining and transport, CTL production requires large quantities of water. Approximately 10 gallons of water are used for every gallon of CTL product. Sourcing the additional 210 billion gallons of water needed annually to meet provisions called for in the bill would be challenging. There are already serious water supply problems in Western states such as Montana and Wyoming where most of our cheap coal supplies are located. Investors in China have also begun to show a new skepticism for CTL because of water supply concerns in its coal heartland.

Coal-To-Liquid Alternatives

There are alternatives to CTL that are already available, and achieve the same objectives as CTL without the adverse environmental impacts.

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  • Vehicle Efficiency. Improving vehicle efficiency can cost-effectively reduce the need to import oil and simultaneously slash GHG emissions. The U.S. corporate average fuel efficiency program (CAFE) cut this country's oil demand by nearly 3 million barrels a day between 1978 and 1985. No significant changes have been made in the requirements since then, however. CAFE and other vehicle efficiency measures offer the greatest opportunity to serve U.S. public interests holistically, yet a lack of political leadership has left these options largely unused.

  • Biofuels. Non-grain based ethanol and biodiesel are other options that can simultaneously improve energy security and global warming concerns, provided that adequate environmental safeguards are applied. Cellulosic ethanol is particularly promising, and policy measures enacted today can ensure a more certain future.

If CTL technology is to have a role in meeting future U.S. energy needs, we will need to address the high greenhouse gas emissions, costs, and water use. Otherwise, this option involves trade-offs that don't serve the nation's larger public interests.

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1 Using a reference of 2 barrels of CTL product per ton of feedstock coal, this provision would require about 250 million tons of incremental coal use per year. This is roughly 20 percent more than today's consumption.

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