Coal: The cornerstone of America’s energy future

Developing a clean, abundant, and affordable energy supply may be the most important challenge facing the U.S. today. President Bush made the issue clear when he proclaimed in his 2006 State of the Union address that, “Keeping America competitive requires affordable energy. And here we have a serious problem.” A serious problem indeed, but not a problem without solutions, assuming we are motivated to invest the resources needed to develop permanent solutions and to find a consistent political will to implement them.

The National Coal Council (see sidebar) is a Federal Advisory Committee that reports directly to the secretary of energy. Its sole purpose is to advise, inform, and make recommendations to the secretary on issues related to coal or the coal industry. The report, titled “Coal: America’s Energy Future,” was completed earlier this year and forwarded to Secretary Bodman in April.

The report addresses the secretary’s request in the context of the president’s desire to lessen U.S. dependence on the Middle East for energy and his Advanced Energy Initiative. Running more than 125 pages, it details eight findings and recommendations for using advanced technology to leverage America’s extensive coal assets and reduce its dependence on imported oil.

Which way did they go?

With apologies to Confucius, if you don’t know where you are going, any road will do. That proverb applies to developing a focused energy policy supportive of investment decisions that will impact generations to come. The journey to greater U.S. energy independence has three legs: fully understanding our current energy situation, identifying the desired future situation (the end state), and charting a course between the two. Engineers and scientists can plot the milestones along the way, but it is a consistent national energy policy that sets the overall course. Progress toward the destination can be measured by the rate of public and private investment in enabling technologies.

Today’s drivers

The report is based on several fundamental premises regarding the evolving energy situation in the U.S.

American energy demand will increase 27% over the next 25 years. The U.S. Department of Energy’s (DOE’s) Energy Information Administration (EIA) projects that America’s overall annual energy consumption will grow from 100 quadrillion Btus in 2004 to 127 quadrillion Btus in 2030. On a percentage basis, this increase will be about the same as the gain between 1972 and 2004. But during those years, oil imports were available to meet two-thirds of new demand. That reliable supply cushion no longer exists. Thus, the bulk of new energy supply for the next generation of Americans will come from coal in its many varied applications.

Coal alone has the reserves to meet growing U.S. demand. Coal’s annual production in the U.S. of over 1.1 billion tons can be more than doubled to 2.4 billion tons, because our coal reserves are vast. U.S. oil and natural gas production both peaked in the 1970s, but we have enough coal to last more than 100 years even at elevated levels of consumption. In 2004 the EIA estimated that proven U.S. coal reserves exceed 496 billion short tons, distributed across more than 25 states with significant recoverable resources.

China and other emerging economies are accelerating exploitation of their coal resources. China will increase its coal production from 1.7 billion tons per year (tpy) today to over 3.2 billion tpy by 2020. The added supply will be turned into liquids and synthetic gas (syngas) and burned directly in existing and new Chinese power plants whose total capacity should exceed 1,000 GW within two decades. Syngas production is already well under way in China, and liquefaction will follow shortly. Both programs are regarded as strategic imperatives by the national government. In recent years, other nations have substantially increased their use of coal as well (Figure 1).

1. Why coal prices are up.
Global coal use soared 25% over a recent three-year period. Source: BP Statistical Review of World Energy, 2003, 2004 & 2005

Maximizing coal use lessens U.S. dependence on imported oil and gas. The EIA forecasts that from 2004 to 2030, petroleum imports will increase from 58% to 62% of supply, and natural gas imports will grow from 15% to 21%. More imports will be needed, because between 2001 and 2005 domestic oil and natural gas production fell 11% and 7%, respectively, with the losses in oil continuing a three-decade decline (Figure 2). Remaining heavily dependent on imports of these two fuels will impose staggering costs on America’s economy and swell its trade deficit. At today’s prices, oil and natural gas imports would require writing checks totaling $2.5 trillion to foreign payees between 2010 and 2019 alone.

2. Making the addiction worse.
Annual U.S. oil production has dropped 57% over the past 30 years. America now produces 1.5 billion fewer barrels than in 1970. Source: U.S. DOE Energy Information Administration

Clean-coal technologies have matured. Demonstration projects have proven that electricity can be generated from gasified coal as efficiently as from pulverized coal, while producing far less pollution. Power generation is only one application of coal gasification, a process that is now reliable enough for several U.S. utilities to have chosen it for their next generation of plants. Other applications for the process include converting coal to natural gas, liquid fuels, and hydrogen. An important benefit of gasification is the capture of carbon dioxide (CO2), which then could be used to enhance recovery of oil and coal-bed methane from underground fields.

Implementing clean-coal technologies would produce big benefits. According to an independent scholarly analysis conducted at Penn State University, acting on the eight recommendations listed below would reduce energy prices by 33% by 2025, create more than 1.4 million new jobs per year, and increase U.S. GDP (on a cumulative basis, by 2025) by $3 trillion. If the CO2 produced by coal gasification and liquefaction were to be used to enhance oil-field recovery, the cumulative gain in GDP would exceed $4 trillion.

Foresight from hindsight

Before turning to the recommendations, a bit of perspective may be order. In particular, a recap of U.S. responses to the energy crises of the 1970s is useful both for shedding light on the current situation and for demonstrating that the recommendations in “Coal: America’s Energy Future” for expanding the use of coal have a strong foundation.

Before the 1973 Arab oil embargo, oil was relatively inexpensive, so it fueled almost 20% of electricity generation in the U.S. When Middle Eastern oil-producing nations decided to use oil as a political weapon and embargoed oil shipments to the U.S. and other Western countries, prices skyrocketed. By January 1974, oil prices had risen from $3 to $11 per barrel.

Policy makers moved quickly to reduce U.S dependence on foreign sources of energy. In November 1973, President Nixon signed the Emergency Petroleum Allocation Act—making energy supplies subject to government regulation—and launched Project Independence—whose goal was to free the U.S. from reliance on foreign oil by 1980. In 1978, perceived natural gas supply problems led to the implementation of the Fuel Use Act, which virtually eliminated the construction of natural gas power plants until its repeal in 1988.

Over time, the impact of these policy moves was a wholesale shift from high-cost oil- and gas-fired generation to low-cost generation fueled by coal and nuclear fission. Since the early 1970s, U.S. utilities have built more than 300 GW of coal-fired power plants. By building new reactors and uprating existing ones, they also have added 100 GW of nuclear capacity.

The benefits of all this lower-cost capacity have been passed on to consumers for decades in the form of lower electric bills. Today, coal and nuclear power are the backbone of the U.S. electricity infrastructure, supplying 50% and 20%, respectively, of the country’s needs. Due to steady increases in demand, however, the ability of America’s coal and nuclear fleets to provide reliable baseload capacity is increasingly strained. Now is the time to add new coal-fired capacity, and utilities and independent power producers (IPPs) have responded to the need by pursuing more than 90 GW of projects in various stages of development (Figure 3).

3. Boom, bust, boom. Experts anticipate the largest increases in U.S. coal-fired capacity in decades. If all the plants are built, they would consume 280 million tons of coal per year. Sources: U.S. DOE, National Energy Technology Laboratory

Today’s U.S. energy situation is both similar to and different from that of the 1970s. Natural gas faces supply and deliverability issues, and the fuel has become prohibitively expensive for power generation. Gas prices have risen not only because domestic production has declined but also because demand has skyrocketed. Most of the increase in demand came from the many new natural gas–fired combined-cycle plants that utilities and IPPs built over the past years, to increase both their fuel diversity and their dispatching flexibility. With few exceptions, much of that new capacity now sits idle much of the time, unable to augment America’s baseload electricity supply.

Fortunately, there is a certain, secure, and cost-effective way to change America’s energy model. As it did in the aftermath of the energy crises of the 1970s, Washington should once again promote greater use of domestic coal for power generation as a way to lessen U.S. dependence on foreign oil and gas. Doing so would not put all of America’s energy eggs in one basket. Numerous pilot projects continue to affirm coal’s flexibility. Though mature technologies have enabled coal to fuel electricity production for a century, emerging technologies promise the ability to convert it to gas, liquids, or—via ethanol production—hydrogen, the expected basis of America’s next energy economy.

Coal’s flexibility doesn’t end there. As previously mentioned, the CO2 captured during coal gasification or liquefaction can be put to good use, to enhance recovery of oil or coal-bed methane from fields and mines. Should the federal government or individual states choose to impose limits on carbon emissions, CO2-capture techniques now being refined will enable industry to meet them.

Defining the end state

The National Coal Council recommends that the U.S. DOE and other key government entities address the following eight recommendations (National Priority Findings) related to coal-fueled energy and Btu-conversion technologies. The council estimates that following up on all eight recommendations—which are not ranked by priority—would require capital expenditures of $350 billion (net present value).

Finding 1: Use coal-to-liquids technologies to produce 2.6 million barrels/day. U.S. demand for foreign oil continues to rise. But global demand is growing even faster, raising concerns that oil-producing nations are depleting worldwide reserves at rates faster than new fields can be found and put into production. Applying coal-to-liquids technologies would relieve cost and supply pressures on the U.S. transportation sector. Producing 2.6 million bbl/d of liquids would require 475 million tons of coal annually, but doing so would add 10% to the overall U.S. oil supply.

Finding 2: Use coal-to-natural gas technologies to produce 4 trillion ft3/yr. Conventional natural gas production in the U.S. is in significant decline, and we are now seeing the fallout: tighter supplies, higher prices, and increased dependence on foreign sources—including liquefied natural gas (LNG). Importing LNG poses the same cost and energy security problems as importing oil. Using coal to produce natural gas, and as a replacement for natural gas in the production of chemicals, would ease the supply pressures and moderate prices as well. Producing 4 trillion cubic feet (Tcf) of natural gas annually would require 340 million tons of coal but reduce America’s consumption of conventional natural gas by at least 15%. The unconventional natural gas made available could be used for residential, commercial, industrial, or any other application currently using conventional natural gas. Significantly, 4 Tcf is roughly equal to the EIA’s projection for LNG imports in 2025.

Finding 3: Build 100 GW of clean coal plants by 2025. The past six years’ building boom of peaking power plants fueled by expensive and price-volatile natural gas has not served the public interest. America must develop new clean coal-fired generating capacity to slow natural gas demand, ease supply pressures, and suppress further price increases. High natural gas prices stress the economy, reduce productivity, and hit the pocketbooks of residential, commercial, and industrial consumers hard. 100 GW of new, clean-coal electricity plants would require an additional 375 million tons of coal annually, but the new capacity would satisfy more than 60% of the increase in national demand expected by 2025. Building these plants also would relieve price pressures on natural gas, saving users money and expanding applications for the fuel. A range of advanced coal combustion and gasification technologies is in development or being scaled up to commercial size. All of these projects have similar goals: to prove that coal can be used to generate electricity very cost-effectively and reliably, with near-zero emissions.

Finding 4: Produce ethanol from coal. The U.S. is committed to expanding the use of ethanol to displace a significant amount of foreign oil as a transportation fuel. Currently, natural gas, diesel fuel, and electricity are used to produce ethanol. Now, the ethanol industry is ready to embrace coal as a fuel source. Using coal to provide the heat and electricity needed by the ethanol production process would reduce manufacturers’ costs and retail ethanol prices. It also would make significant amounts of oil and natural gas available for other uses, lowering those fuels’ prices as well. The National Coal Council estimates that an additional 40 million tons of coal per year would be required for this application.

Finding 5: Develop coal-to-hydrogen technologies. The Bush administration’s Freedom Fuel and Freedom Car initiatives are intended to transition the U.S. into a hydrogen economy by fostering the use of coal-derived energy to power fuel cells. The Freedom Car program envisions development of a fleet of coal-to-hydrogen plants through which coal could satisfy at least 10% of the nation’s transportation-fuel needs. This application would require an additional 70 million tons of coal per year.

Finding 6: Use CO2 to enhance recovery of oil and coal-bed methane. The U.S. DOE has identified carbon capture and storage as having the potential to limit industrial emissions of carbon dioxide, a gas thought to play a large role in global warming. Major regional carbon storage projects and partnerships are under way around the country. One promising use for the carbon is to enhance recovery of oil from working fields or recovery of methane from coal beds. The former application could increase U.S. oil production by 2 million to 3 million barrels of oil per day, assuming recoverable reserves of up to 89 billion barrels in 10 basins. Implementing both techniques would go a long way toward improving America’s energy security by increasing supplies and moderating price pressures on both fuels.

Finding 7: Increase the capacity of U.S. coal mines and railroads. Can enough additional coal be produced to supply all of the new Btu-conversion technologies? Based on an in-depth study of existing data, the National Coal Council has concluded that the production capacity of the U.S. coal mining industry and the transportation capacity of America’s coal-hauling railroads could indeed be expanded by 1,300 million tons per year by 2025—the sum of the supply needs of the technologies described in Findings 1 through 5 (see table)—without compromising existing safety and environmental standards.

Capital expenditures for coal Btu conversion technologies Source: National Coal Council

Finding 8: Invest in technology development and implementation. Independent research conducted by Penn State University for the report concludes that using technology to transfer the latent heat in 1,300 million tons of coal to another medium would boost annual U.S. economic output by more than $600 billion by 2025, creating 1.4 million jobs in the bargain (Figure 4). To achieve these benefits, a capital investment of $515 billion ($350 billion on a present value discounted basis) will be required. This level of investment also would result in a cumulative gain in U.S. gross domestic product (GDP) of $3 trillion, on the same basis.

4. Economic shot in the arm. Projected increases in U.S. GDP from more robust coal use. Source: Penn State University

Given the size of the rewards—and considering the unquantifiable risks of continuing on the same path of energy dependence—investing in clean coal technologies is a no-brainer. Making American more energy-independent will not only propel the U.S. post-industrial economy to new heights and enable its current citizens to enjoy a higher standard of living. It also will ensure that our children have access to an adequate supply of affordable electricity and clean air to breathe.

-Robert A. Beck is executive director of the National Coal Council. He can be reached at [email protected]

or 202-223-1191.

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