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Can Coal-to-Liquid Transportation Fuel be Considered an Alternative Fuel?

Discussants: Elizabeth Martin Perera, and Alex Farrell
Updated: August 1, 2007

Steep rises in oil prices and demand coupled with political instability in some of the world’s largest oil producing nations have some countries weighing turning coal into transportation fuel. Advocates of coal to liquid fuels assert that such a venture would enable countries to use domestic coal reserves to provide a clean-burning fuel that would decrease the need for oil imports. But critics say that turning coal into liquid fuel is an expensive, inefficient process that uses water unsustainably and produces significantly more greenhouse gas emissions than oil.

Elizabeth Martin Perera, a climate policy anaylyst for the Natural Resources Defense Council, and Alex Farrell, director of UC Berkley’s Transportation Sustainability Research Center, discuss the merits and challenges of coal-to-liquids (CTLs) as an alternative fuel.

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August 1, 2007

Alex Farrell

An excellent example of Elizabeth’s “talking a big game” is currently on the Shell Canada website where they prominently display the fact that “Shell Celebrates Canadian Environment Week, June 3-9” which involved a “special reception” and several thousand dollars in prize money, while at the same time barely mentioning an expansion of their tar sands operation at Scotford. This expansion is where the real effort is going - $27 billion worth of effort. But not a word about the additional greenhouse gases that this project will produce.

In a sense, this is just good capitalism. But it warns us to be wary about private companies and the public interest. We must hold public officials accountable for doing the people's work. 

And in the CTL debate, some of our elected leaders are doing a shameful job that increases the risks to national security. How? Two ways.

First, public officials who ignore the environmental implications of CTL projects create an argument that delays progress on developing these resources. If legislators were to include requirements that all CTL projects in the country were required to eliminate their excess GHG emissions, there would be far less opposition and the security benefits of such projects (assuming there are any) would accrue to the United States much more quickly. Even a requirement that all CTL projects would be responsible for their GHG emissions without exception or exemption from any future climate change law would be helpful. But legislators who irresponsibly ignore the climate impacts of CTL projects delay the security benefits that these projects might bring.

The second way that public leaders cause added security risks is by failing to address climate change, or, worse, disrespecting international efforts to control climate change. Such behavior undermines respect for the United States and for international agreements in general, and it adds to the proximate risks of climate change by deferring the date that the world takes this challenge on. Advancing CTL projects without considering climate change makes U.S. complaints about China’s GHG emissions naïve at best, cynical at worst. Climate change is a major challenge, so American leadership is crucial to our own security and economy, in addition to the environment.

Elected leaders who are acting like good capitalists by promoting CTL projects while ignoring the climate impacts might want to consider how voters, or posterity, will judge them.

July 31, 2007

Elizabeth Martin Perera

Our nation’s growing dependence on oil and the threat of catastrophic global warming should not put us at a crossroads as we chart our energy future. Both are serious threats that warrant immediate action, and they can be addressed together through measures to increase the efficiency of our transportation system and a shift to clean, renewable fuels.  However, turning to coal-to-liquid fuels to move America beyond oil will be a step backwards for global warming.

As Mr. Farrell points out, competitive firms don’t voluntarily reduce pollution and pass up the chance to lower their costs. Industry has continued to claim that they will voluntarily capture and dispose of 85 percent of their carbon emissions and will co-fire coal with biomass. Important to note here is that coal-to-liquid plants that capture and dispose of their carbon still produce 10 percent more GHG life-cycle CO2 emissions. Therefore, CTL plants must co-fire with biomass in order to decrease their life-cycle CO2 emissions to be equivalent with the life-cycle CO2 emissions of conventional gasoline. However, when faced with actual CO2 regulations, industry representatives have pushed back on requirements to do carbon capture and disposal and biomass co-firing. Industry representatives will continue to talk a big game about having the carbon problem solved but in reality they will be secretly fighting CO2 requirements on this industry.

At a time when the U.S. Congress is proposing mandatory cap-and-trade legislation on carbon emissions, we cannot be funding an industry that at worst doubles CO2 emissions and at best is as bad as conventional gasoline.  If this industry is allowed to develop uncontrolled, it will make complying with carbon emission reductions more expensive.

July 30, 2007

Alex Farrell

Show me the money.

Supporters of CTL projects argue that they provide security benefits by reducing imports of petroleum and by developing fuel supply infrastructure away from coastal areas (where most of our oil importing and refining occurs). They then argue for government support like guaranteed contracts and price supports. Potential executives and investors in the new CTL industry argue that there's too much risk for them to put their own capital into these projects and that the public benefits of improved security are sufficient to justify these subsidies. Rarely mentioned are public costs, such as those from mountaintop removal or additional greenhouse gases (nearly double those from conventional oil). And never do we see a careful, objective analysis balancing the costs and benefits of such proposals.

Even claims about “cleaner burning fuel” are about the money. For the last thirty years and for the foreseeable future, pollution levels have been set by government regulations, not by new technologies. These regulations are strict and impose costs on consumers (not on industry, which passes the costs through). If a better technology comes along, industry uses it to meet existing pollution regulations at lower costs. Competitive firms don’t voluntarily reduce pollution and pass up the chance to lower their costs. And they shouldn't. So what will happen if sulfur-free CTLs enter the market? They’ll be blended with higher-sulfur (and cheaper) crude oil to meet environmental regulations. Over time, government may tighten some pollution standards, as better science discovers more subtle effects and public views move towards greater environmental protection. But improvements in technology lower costs, they don’t lead to less pollution.

And this is the problem with greenhouse gases (GHGs). The United States has irresponsibly chosen to avoid fighting climate change and without government regulations to control GHG emissions, industry simply won't seriously reduce them. Proposals for financial guarantees to build a new CTL industry are sometimes accompanied by promises to deal with GHGs later on. For industry leaders, this is expected, they are supposed to maximize returns for their shareholders, not look out for the public good. That responsibility falls upon political leaders.

The solution is to put climate change legislation in place first, and then decide if public subsidies for a new CTL industry are worth the money. This approach will help ensure taxpayer dollars are spent wisely and may even have its own subtle but powerful national security benefits.

July 30, 2007

Elizabeth Martin Perera

Here are the true costs of coal-to-liquid fuel.

The considerable economic, social, and environmental drawbacks of coal-derived liquid fuel preclude it from being a sound option to move America beyond oil. To move America beyond oil, we should start with the measures that will produce the quickest, cleanest, and least expensive reductions in oil use—measures that will also put us on track to achieve the reductions in global warming emissions we need to protect our climate.

Experts say we need to cut global warming emissions by 60 percent to 80 percent by mid-century to minimize irreversible and harmful effects of global warming. The United States and other nations should use energy resources that produce less carbon dioxide pollution than that produced by oil, gas, and coal. And the technologies we invest in now to meet our future energy needs must have the potential to perform at much reduced emission levels. So how do liquid coal processes perform?

To assess the global warming implications of a large liquid coal program, we need to examine the total life cycle, or “well-to-wheel,” emissions of these new fuels. Coal is a carbon-intensive fuel, containing almost double the amount of carbon per unit of energy compared to natural gas and about 20 percent more than petroleum. Proponents of coal-derived liquids claim they are “clean” because the fuel is sulfur-free, but when coal is converted to transportation fuel, two streams of carbon dioxide (CO2) are produced: one at liquid coal production plants and one from exhaust pipes of the vehicles that burn the fuel. Emissions from liquid coal production plants are much higher than those from producing and refining crude oil to produce gasoline, diesel, and other transportation fuels; emissions from vehicles are about the same. The total well-to-wheels emission rate for conventional petroleum-derived fuel is about twenty-seven pounds of CO2 per gallon of fuel. If the CO2 from the liquid coal plant is released into the atmosphere, based on available information about liquid coal plants being proposed, the total well-to-wheels CO2 emissions from coal-derived fuel would be about fifty pounds of CO2 per gallon—nearly twice as high. Introducing a new fuel system that doubles the current CO2 emissions of our crude oil system is clearly at odds with our need to reduce global warming emissions.

Even capturing 90 percent of the emissions from liquid coal plants leaves emissions at levels somewhat higher than those from petroleum production and refining. Since policies to cut CO2 emissions are inevitable, proceeding with liquid coal plants now would leave investments stranded or impose unnecessarily high abatement costs on the economy.

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