[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
      FUTURE OF FEDERAL COAL: STATUS, AVAILABILITY AND IMPACT OF 
  TECHNOLOGICAL ADVANCES IN USING COAL TO CREATE ALTERNATIVE ENERGY 
                               RESOURCES

=======================================================================

                           OVERSIGHT HEARING

                               before the

                       SUBCOMMITTEE ON ENERGY AND
                           MINERAL RESOURCES

                                 of the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                         Thursday, May 4, 2006

                               __________

                           Serial No. 109-51

                               __________

           Printed for the use of the Committee on Resources



  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                                   or
         Committee address: http://resourcescommittee.house.gov


                                 ______

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                         COMMITTEE ON RESOURCES

                 RICHARD W. POMBO, California, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska                    Dale E. Kildee, Michigan
Jim Saxton, New Jersey               Eni F.H. Faleomavaega, American 
Elton Gallegly, California               Samoa
John J. Duncan, Jr., Tennessee       Neil Abercrombie, Hawaii
Wayne T. Gilchrest, Maryland         Solomon P. Ortiz, Texas
Ken Calvert, California              Frank Pallone, Jr., New Jersey
Barbara Cubin, Wyoming               Donna M. Christensen, Virgin 
  Vice Chair                             Islands
George P. Radanovich, California     Ron Kind, Wisconsin
Walter B. Jones, Jr., North          Grace F. Napolitano, California
    Carolina                         Tom Udall, New Mexico
Chris Cannon, Utah                   Raul M. Grijalva, Arizona
John E. Peterson, Pennsylvania       Madeleine Z. Bordallo, Guam
Jim Gibbons, Nevada                  Jim Costa, California
Greg Walden, Oregon                  Charlie Melancon, Louisiana
Thomas G. Tancredo, Colorado         Dan Boren, Oklahoma
J.D. Hayworth, Arizona               George Miller, California
Jeff Flake, Arizona                  Edward J. Markey, Massachusetts
Rick Renzi, Arizona                  Peter A. DeFazio, Oregon
Stevan Pearce, New Mexico            Jay Inslee, Washington
Henry Brown, Jr., South Carolina     Mark Udall, Colorado
Thelma Drake, Virginia               Dennis Cardoza, California
Luis G. Fortuno, Puerto Rico         Stephanie Herseth, South Dakota
Cathy McMorris, Washington
Bobby Jindal, Louisiana
Louie Gohmert, Texas
Marilyn N. Musgrave, Colorado
Vacancy

                     Steven J. Ding, Chief of Staff
                      Lisa Pittman, Chief Counsel
                 James H. Zoia, Democrat Staff Director
               Jeffrey P. Petrich, Democrat Chief Counsel
                                 ------                                

              SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES

                     JIM GIBBONS, Nevada, Chairman
           RAUL M. GRIJALVA, Arizona, Ranking Democrat Member

Don Young, Alaska                    Eni F.H. Faleomavaega, American 
Barbara Cubin, Wyoming                   Samoa
Chris Cannon, Utah                   Solomon P. Ortiz, Texas
John E. Peterson, Pennsylvania       Jim Costa, California
Stevan Pearce, New Mexico            Charlie Melancon, Louisiana
Thelma Drake, Virginia               Dan Boren, Oklahoma
  Vice Chair                         Edward J. Markey, Massachusetts
Bobby Jindal, Louisiana              Nick J. Rahall II, West Virginia, 
Louie Gohmert, Texas                     ex officio
Richard W. Pombo, California, ex 
    officio


                                 ------                                
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on Thursday, May 4, 2006............................     1

Statement of Members:
    Cannon, Hon. Chris, a Representative in Congress from the 
      State of Utah, Prepared statement of.......................    88
    Cubin, Hon. Barbara, a Representative in Congress from the 
      State of Wyoming, Prepared statement of....................    89
    Gibbons, Hon. Jim, a Representative in Congress from the 
      State of Nevada............................................     1
        Prepared statement of....................................     3
    Grijalva, Hon. Raul M., a Representative in Congress from the 
      State of Arizona...........................................     4

Statement of Witnesses:
    Anselmo, Garry L., Chief Executive Officer, Silverado Green 
      Fuel, Inc..................................................    70
        Prepared statement of....................................    73
    Copulos, Milton R., President, National Defense Council 
      Foundation.................................................     9
        Prepared statement of....................................    10
    Hawkins, David G., Director, Climate Center, Natural 
      Resources Defense Council..................................    16
        Prepared statement of....................................    17
    Kelly, Robert C., Partner, DKRW Energy LLC...................    67
        Prepared statement of....................................    69
    Palmer, Fredrick D., Senior Vice President, Government 
      Relations, Peabody Energy..................................    33
        Prepared statement of....................................    35
    Pierce, Brenda S., Program Coordinator, Energy Resources 
      Program, U.S. Geological Survey, U.S. Department of the 
      Interior...................................................     5
        Prepared statement of....................................     7
    Ramsbottom, D. Hunt, President and CEO, Rentech, Inc.........    58
        Prepared statement of....................................    60
    Rich, John W., Jr., President, WMPI Pty., LLC................    55
        Prepared statement of....................................    57
    Ward, John N., Vice President, Marketing & Government 
      Affairs, Headwaters Incorporated...........................    63
        Prepared statement of....................................    65


OVERSIGHT HEARING ON THE ``FUTURE OF FEDERAL COAL: STATUS, AVAILABILITY 
     AND IMPACT OF TECHNOLOGICAL ADVANCES IN USING COAL TO CREATE 
                     ALTERNATIVE ENERGY RESOURCES''

                              ----------                              


                         Thursday, May 4, 2006

                     U.S. House of Representatives

              Subcommittee on Energy and Mineral Resources

                         Committee on Resources

                            Washington, D.C.

                              ----------                              

    The Subcommittee met, pursuant to call, at 10:00 a.m. in 
Room 1324, Longworth House Office Building, Hon. Jim Gibbons, 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Gibbons, Drake, Pearce, Cannon, 
Grijalva and Costa.

  STATEMENT OF THE HONORABLE JIM GIBBONS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF NEVADA

    Mr. Gibbons. Good morning, ladies and gentlemen. The 
oversight hearing by the Subcommittee on Energy and Mineral 
Resources will come to order. The Subcommittee is meeting today 
to hear testimony on the Future of Federal Coal: Status, 
Availability and Impact of Technology Advances in Using Coal to 
Create Alternative Energy Resources.
    However, before we get started today, I want to ask 
unanimous consent to allow the gentleman from Pennsylvania, Mr. 
Holden, to be allowed to sit on the dais to participate in the 
hearing, and without objection so ordered.
    Under Committee Rule 4[g], the Chairman and the Ranking 
Minority Member can make opening statements, However, if any 
Member wishes to be heard and have an opening statement their 
remarks can be recorded under unanimous consent.
    The Subcommittee meets today to review the future role of 
coal-to-liquids technology and resolving the Nation's liquid 
fuel problem. About 95 percent of the Nation's transportation 
fuels are derived from petroleum. These fuels are used to 
transport people, food, goods and services that are vital to 
our economy. They also power our nation's air, naval and land 
forces. Without a secure, stable, affordable supply of liquid 
transportation fuel, both our economy and our national defense 
will suffer.
    We will hear today about the hidden costs that the Nation 
pays for its dependence on imported fuels. We will be getting 
an update on what has happened to the external or hidden costs 
of imported fuels since we last examined them in 2004. I 
suspect that they have gone up like the rest of the costs 
associated with petroleum.
    We will hear about the Nation's coal resources. We will 
hear about the findings and the recommendations contained in 
the National Coal Council's report on the future of coal. That 
report was delivered to the Secretary of Energy in March of 
this year.
    We will also examine the current efforts of industry to 
bring commercial coal-to-liquids fuel to the marketplace. We 
will hear today about the proposed projects in the East, the 
Midwest, the South and the West. We can be assured that a 
successful coal-to-liquids industry will play a significant 
role in helping to meet the national energy needs of the 
country, and during this hearing we will examine the potential 
for a set of technologies to create liquid fuels from a variety 
of feedstocks, including coal.
    These technologies are sometimes known as the Fischer-
Tropsch, after the two scientists who discovered the chemical 
reaction. Often this is a simple abbreviated symbol, 
abbreviated as FT.
    These are not new technologies, and they are certainly not 
untried technologies. They were first developed in the 1920s 
and used by the Germans and the Japanese to make military fuels 
during the Second World War. Following the war years, the 
United States continued to conduct research to refine the 
technologies.
    What kept the technologies from being commercial in the 
early post-war years was the low cost of liquid transportation 
fuels derived from petroleum. Nonetheless, the government 
continued to conduct research on FT fuels.
    In the years since the 1973 energy crisis, the Federal 
government has invested nearly $4 billion on research aimed at 
improving FT technology. The ups and downs of oil prices during 
this time continued to discourage the commercial use of FT 
fuels. However, the current high price of petroleum has once 
again made FT fuels attractive, although the possibility of 
future price swings remains a concern.
    The Energy Policy Act of 2005 contained provisions to 
encourage the commercialization of innovative fuels such as 
coal to liquids. The Act continues the investment and emphasis 
on FT research in Section 417 of the Energy Policy Act of 2005, 
committing $85 million to the further study of producing FT-
derived transportation fuels from Illinois Basin coal.
    Title 17 of the Energy Policy Act of 2005 authorizes loan 
guarantees for innovative technologies, including coal-to-
liquid projects. I expect that these provisions of the Energy 
Policy Act will play a crucial role in expanding our ability to 
utilize these important domestic energy resources.
    Before I conclude my remarks, I must note that even before 
there was a Fischer-Tropsch technology, there was an earlier 
set of technologies that made coal oil from eastern U.S. coal. 
Throughout the 1850s and the early 1860s, oil produced from 
coal was a competitive source of fuel for lamps.
    Alas for this growing industry, Colonel Drake's well in 
northwestern Pennsylvania changed the economics of producing 
petroleum and coal oil and was relegated back to the research 
lab.
    As we look at Fischer-Tropsch technology, we should be 
mindful that this is not a new or strange technology. Its 
commercial viability has been subject to price swings in the 
past and could be subject to price swings in the future.
    In closing, I must note that just like the character in the 
1985 movie, we are going ``Back to the Future'' when we talk 
about commercializing coal-to-liquid technology, and I want to 
thank the witnesses for joining us today. I look forward to 
your testimony.
    Before I turn it over to our witnesses I would like to 
invite the Ranking Member of the Subcommittee, Raul Grijalva, 
for any opening remarks that he may wish to give. Mr. Grijalva?
    [The prepared statement of Mr. Gibbons follows:]

           Statement of The Honorable Jim Gibbons, Chairman, 
              Subcommittee on Energy and Mineral Resources

    The Subcommittee meets today to review the future role of coal-to-
liquids technology in resolving the Nations liquid fuels problem.
    About 95 percent of the Nation's transportation fuels are derived 
from petroleum.
    These fuels are used to transport people, food, goods and services 
that are vital to our economy.
    They also power our Nation's air, naval and land forces.
    Without a secure, stable and affordable supply of liquid 
transportation fuels both our economy and our national defense will 
suffer.
    We will hear about the ``hidden'' costs the Nation pays for its 
dependence on imported fuels.
    We will be getting an update on what has happened to the external 
or ``hidden'' costs of imported fuels since we last examined them in 
2004.
    I suspect that they have gone up like the rest of the costs 
associated with petroleum.
    We will hear about the Nation's coal resources.
    We will hear about the findings and the recommendations contained 
in National Coal Council's report on the future of coal that was 
delivered to the Secretary of Energy in March of this year.
    We will examine the current efforts of industry to bring commercial 
coal-to-liquid fuels to the marketplace.
    We will hear today about proposed projects in the East, the 
Midwest, the South and the West.
    We can be assured that a successful coal-to-liquids industry will 
play a significant role in helping to meet the national energy needs of 
the country.
    During this hearing we will examine the potential for a set of 
technologies to create liquid fuels from a variety of feed stocks, 
including coal.
    These technologies are sometimes known as ``Fischer-Tropsch'' after 
the two scientists who discovered the chemical reactions. Often this is 
simply abbreviated as ``FT.''
    These are not new technologies and they are certainly not untried 
technologies. They were first developed in the 1920's and used by the 
Germans and the Japanese to make military fuels during the Second World 
War.
    Following the war years, the United States continued to conduct 
research and to refine the technologies. What kept the technologies 
from being commercial in the early post-war years was the low cost of 
petroleum derived liquid transportation fuels.
    Nonetheless, the government continued to conduct research in FT 
fuels.
    In the years since the 1973 energy crisis, the federal government 
has invested $3.6 Billion on research aimed at improving the FT 
technology.
    The ups and downs of oil prices during this time continued to 
discourage the commercial uses of FT fuels.
    However, the current high price of petroleum has once again made FT 
fuels attractive, although the possibility of future price swings 
remains a concern.
    The Energy Policy Act of 2005 contained provisions to encourage the 
commercialization of innovative fuels such as coal to liquids.
    The Act continues the emphasis on FT research in Section 417 of the 
Energy Policy Act of 2005, committing $85 Million to the further study 
of producing FT-derived transportation fuels from Illinois Basin Coal.
    Title XVII of The Energy Policy Act of 2005 authorizes loan 
guarantees for innovative technologies including coal-to-liquids 
projects.
    I expect that these provisions of the Energy Policy Act will play a 
crucial role in expanding our ability to utilize these important 
domestic energy resources.
    Before I conclude my remarks, I must note that even before there 
was Fischer-Tropsch technology, there was an earlier set of 
technologies that made ``coal oil'' from eastern U.S. coals.
    Throughout the 1850s and the early 1860s oil produced from coal was 
a competitive source of fuel for lamps. Alas for this growing industry, 
Colonel Drake's well in northwestern Pennsylvania changed the economics 
of producing petroleum and coal oil was relegated to the research labs.
    As we look at Fischer-Tropsch technology, we should be mindful that 
this is not a new or strange technology. Its commercial viability has 
been subject to price swings in the past and could be subject to price 
swings in the future.
    And, in closing, I must note that like the character in the 1985 
movie, we are going ``Back to the Future'' when we talk about 
commercializing coal-to-liquids technology.
    I thank the witnesses for joining us today and I look forward to 
your testimony.
                                 ______
                                 

  STATEMENT OF RAUL M. GRIJALVA, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF ARIZONA

    Mr. Grijalva. Thank you very much, Mr. Chairman, and I also 
join with you in welcoming our panel of expert witnesses today 
on this hearing to examine the role of clean coal technologies.
    Today with $75 a barrel oil, record prices at the pump and 
an unstable world market it makes sense to look at the 
possibilities provided by clean coal technologies, along with 
other alternative fuel strategies.
    In theory, coal can be liquified, turned into oil and 
eventually sold for approximately half of what we are paying 
now per barrel according to the Department of Energy. Liquids 
from coal could replace conventional fuels made from crude oil 
that are used for transportation, home heating, lubricants and 
other products. Overall, the expanded use of coal could allow 
the United States to reduce our dependency on dwindling 
supplies of oil and gas over the next several decades.
    That said, we should be honest and acknowledge that a large 
coals to liquid program could have substantial effects on 
global warming, pollution, conventional air pollution and land 
damage from expanded coal production. For our own health and 
welfare and that of our children and future generations, we can 
just not continue to burn fossil fuels at the present rate.
    I believe a combination of energy efficiency and renewable 
fuels such as wind or solar can reduce our oil consumption more 
effectively than just one solution.
    In conclusion, I look forward to this informative 
discussion we are going to have today and at the outset, Mr. 
Chairman, extend my apologies to the witnesses. I have a 
conflicting hearing, and I will probably be leaving prior to 
the question and answer period. For that I extend the 
apologies.
    Thank you, Mr. Chairman, for the time.
    Mr. Gibbons. Thank you, Mr. Grijalva.
    We would like to welcome now our first panel. They include 
Brenda Pierce, USGS Energy Resources Program; Milt Copulos, 
National Defense Council Foundation; David G. Hawkins, Natural 
Resources Defense Council; Fredrick Palmer, Peabody Energy.
    If each of you would stand and raise your right hand as we 
always do, swearing in our witnesses?
    [Witnesses sworn.]
    Mr. Gibbons. Let the record reflect that each of the 
witnesses answered in the affirmative.
    The Chairman will now recognize Brenda Pierce. Brenda, 
welcome. Let me explain that we have a little clock and a timer 
in front of you. If you have never testified before, that 
represents a five-minute window which we ask because we have 
certain time limits on this committee to get everything in.
    We would ask that if you wish you can summarize and expound 
upon your written testimony, which we will accept for the 
record without objection the full and complete testimony of 
each and every witness. Therefore, we will give you the five 
minutes. When you get much beyond five minutes we do sort of 
try to signal you without being obnoxious.
    Brenda, welcome to the committee. We are happy to have you 
here. The floor is yours. We look forward to your testimony.

    STATEMENT OF BRENDA PIERCE, PROGRAM COORDINATOR, ENERGY 
 RESOURCES PROGRAM, U.S. GEOLOGICAL SURVEY, U.S. DEPARTMENT OF 
                          THE INTERIOR

    Ms. Pierce. Thank you. Mr. Chairman and Members of the 
Subcommittee, thank you for the opportunity to appear here 
today to discuss the U.S. Geological Survey's role in studying, 
understanding and assessing the Nation's coal resources. My 
name is Brenda Pierce, and I am the program coordinator for the 
Energy Resources Program at the U.S. Geological Survey.
    Coal is an important domestic energy resource in the United 
States. Currently more than half of the electric power 
generated in this country relies on coal as a fuel source. 
Energy is vital to the continued expansion of our economy and 
to the improvement in our quality of life.
    However, an imbalance exists between our energy consumption 
and domestic energy production resulting in growing amounts of 
imported energy resources. One possible way to bridge this 
widening gap is to consider alternative technologies for coal 
use.
    The USGS promotes and supports scientific investigations of 
geologically based energy resources. These research efforts 
include the geology of oil, gas and coal resources, emerging 
resources such as gas hydrates or underutilized resources such 
as geothermal. The USGS also researches the effects associated 
with energy resource occurrence, production and/or utilization.
    The results of these investigations provide impartial, 
robust scientific information about energy resources and 
directly support the U.S. Department of Interior's mission of 
protecting and managing the Nation's natural resources. 
Collectively this information advances the scientific 
understanding of energy resources, contributes to plans for a 
balanced and secure energy future, and facilitates the 
evaluation and strategic use of resources.
    Coal has been and will continue to be important to the U.S. 
standard of living. Coal is projected to continue to provide a 
relatively inexpensive domestic fuel for electric power 
generation. The locations of major U.S. coal deposits and the 
relative in-ground resources of the major coal beds are 
generally well known. However, estimates of what portion of 
these in-place resources is technically and economically 
recoverable remain uncertain.
    The USGS recently completed resource assessments of the 
five top coal producing regions in the U.S.--the Appalachian 
Basin, Gulf Coast, Illinois Basin, Colorado Plateau and the 
Northern Rocky Mountains and Great Plains. The assessments 
focused on 60 coal beds and coal zones within these regions 
because they are expected to supply the bulk of the U.S. coal 
production in the next few decades.
    The USGS also conducted numerous local scale availability 
and recoverability studies through the 1990s. Results of 
several studies were compiled, and the volumes of coal that 
could be produced typically amounted to only 10 to 20 percent 
of the original in-place resource, an unexpected conclusion.
    Because these studies were conducted on a local scale, the 
results may not be translatable to the scale of coal bearing 
basins. However, if subsequent research determines that similar 
results exist at the basin scale these results would 
significantly alter the perception of the U.S. coal reserve 
base.
    Therefore, USGS has embarked on a systematic inventory of 
the U.S. coal reserve base representing a marked departure from 
previous in-place coal resource assessments. We have spent the 
last year revising our coal resource assessment methodology to 
determine the subset of in-place resources that is technically 
and economically recoverable on a basin wide scale. In other 
words, USGS will start assessing the reserve base of the United 
States.
    The USGS will focus on research efforts working with 
agencies that have land and resource management 
responsibilities such as Bureau of Land Management and Office 
of Surface Mining and those agencies that use USGS resource 
projections for their mission work such as the Energy 
Information Administration so as to incorporate the needs of 
these customers into our products.
    The USGS is now in the process of conducting a reserve 
estimate for the Gillette coal field of the Powder River Basin, 
the largest supplier of coal in the United States. The results 
of this effort are expected in winter of 2006, followed by the 
reserve estimates for the entire Powder River Basin for the end 
of 2007. Subsequent coal reserve base studies will be valuable 
in understanding how much of the domestic coal endowment is 
technologically available and currently economic to produce.
    Studies of coal quality parameters are a core component of 
the USGS Energy Resources Program research portfolio. The USGS 
has recently focused its efforts on studies that examine the 
feed coals and coal combustion products from individual coal-
fired power plants. Coal quality parameters that will be 
examined include elements in coal that can potentially have 
adverse effects on environmental quality and/or may be slated 
for regulation.
    Given the increasing attention on the impacts of coal 
utilization, coal-quality research must address a more 
comprehensive suite of coal quality related issues beyond the 
fundamental coal quality parameters such as ash yield, sulfur 
content and heating value. This more comprehensive approach is 
vital to future coal assessments and future use of coal in this 
country.
    In conclusion, Mr. Chairman, coal is an important component 
of the Nation's energy portfolio, which powers our expanding 
economy. The U.S. Geological Survey is committed to better 
understanding our coal resource endowment, the quality of those 
resources and how those resources may contribute to our coal 
reserve base and the Nation's energy mix. We stand ready to 
respond to the ongoing need for energy development for a 
variety of sources and in new ways.
    Thank you for the opportunity to highlight a few of the 
steps USGS has taken to improve the understanding of the 
Nation's coal resources. I am happy to answer any questions you 
may have.
    [The prepared statement of Ms. Pierce follows:]

 Statement of Brenda S. Pierce, Program Coordinator, Energy Resources 
    Program, U.S. Geological Survey, U.S. Department of the Interior

    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to appear here today to discuss with you the U.S. 
Geological Survey's role in studying, understanding, and assessing the 
Nation's coal resources.
    Coal is an important domestic energy resource in the United States. 
Currently, more than half of the electric power generated in this 
country relies on coal as a fuel source. Energy is vital to the 
continued expansion of our economy and to the improvement of the 
quality of life for Americans. However, an imbalance exists between our 
energy consumption and domestic energy production, resulting in growing 
amounts of imported energy resources. One possible way to bridge this 
widening gap is to consider alternative technologies for coal use.
    The U.S. Geological Survey (USGS) promotes and supports scientific 
investigations of geologically based energy resources. These research 
efforts include the geology of oil, gas, and coal resources, emerging 
resources such as gas hydrates or underutilized resources such as 
geothermal. The USGS also researches the effects associated with energy 
resource occurrence, production, and/or utilization. The results of 
these investigations provide impartial, robust scientific information 
about energy resources and directly support the U.S. Department of 
Interior (DOI) mission of protecting and managing the Nation's natural 
resources. Collectively, this information advances the scientific 
understanding of energy resources, contributes to plans for a balanced 
and secure energy future, and facilitates the evaluation and strategic 
use of resources.
Coal Resources
    National and global energy demand and resource consumption are 
forecast to increase significantly over the next 20 to 30 years. The 
Energy Information Administration (EIA) projects that global energy 
consumption will grow by almost 50 percent by 2025. Most of these 
increases will manifest themselves through increased production of 
fossil fuels. As stated earlier, coal accounts for more than 50 percent 
of the electricity generated in this country. Coal has been and will 
continue to be important to the U.S. standard of living. Coal is 
projected to continue to provide a relatively inexpensive, domestic 
fuel for electric power generation. The locations of the major U.S. 
coal deposits and the relative in-ground resources of the major coal 
beds are generally well known. However, estimates of what portion of 
these in-place resources is technically and economically recoverable 
remain uncertain.
    The USGS recently completed resource assessments of the five top 
coal producing regions in the U.S.--the Appalachian Basin, Gulf Coast, 
Illinois Basin, Colorado Plateau, and the Northern Rocky Mountains and 
Great Plains. The assessments focused on 60 coal beds and coal zones 
within these regions because they are expected to supply the bulk of 
U.S. coal production for the next few decades.
    The USGS also conducted numerous local- to State-scale availability 
and recoverability studies throughout the 1990's. Results of several 
studies were compiled, and the volumes of coal that could be produced 
typically amounted to only 10 to 20% of the original in-place 
resource--an unexpected conclusion. Because these studies were 
conducted on a local scale, the results may not be translatable to the 
scale of coal-bearing basins. However, if subsequent research 
determines that similar results exist at the basin scale, these results 
would significantly alter the perception of the U.S. coal reserve base.
    Therefore, USGS has embarked on a systematic inventory of the U.S. 
coal reserve base, representing a marked departure from previous in-
place coal resource assessments. Although the terms ``resource'' and 
``reserve'' are often used interchangeably, the two terms have 
distinctly different meanings. Coal resources are the volumes of the 
coal in beds with only minor restrictions placed upon the distribution 
and without regard to whether the deposits are economically 
extractable. The term ``reserve'' applies to that portion of the coal 
resource that can be recovered economically with the application of 
extraction technology available currently. The term ``reserve'' implies 
that an economic evaluation has been performed on the coal resource 
taking into account such factors as coal depth and thickness, coal 
quality, mining method, restrictions (environmental, mined out areas, 
and the like), and many other factors. Consequently, the reserve base 
is always much less than the in-place resources.
    The USGS has spent the last year revising its coal resource 
assessment methodology to determine the subset of in-place resources 
that is technically and economically recoverable on a basin-wide scale. 
In other words, USGS will start assessing the reserve base of the 
United States. The USGS will focus on research efforts working with 
agencies that have land and resource management responsibilities, such 
as the Bureau of Land Management and Office of Surface Mining, and 
those agencies that use USGS resource projections for their mission 
work, such as the Energy Information Administration (EIA), so as to 
incorporate the needs of these customers into our products.
    Once the development of the revised coal assessment methodology was 
completed, an external peer review of the methodology was conducted. 
The peer review consisted of experts from State agencies, other Federal 
agencies, and industry. With this input, the USGS further refined the 
methodology, and is now in the process of conducting a reserve estimate 
for the Gillette coal field of the Powder River Basin, the largest 
supplier of coal in the United States. The results of this effort are 
expected in winter of 2006, followed by reserve estimates for the 
entire Powder River Basin by the end of 2007. Subsequent coal reserve 
base studies will be valuable in understanding how much of the domestic 
coal endowment is technologically available and currently economic to 
produce.
    The United States produces approximately one billion tons of coal 
per year, with production steadily rising over time. Almost all of this 
production is used for electric power generation. Our imports are still 
very small (a little over 30 million short tons in 2005), but they are 
increasing. The U.S. also exports coal (about 50 million short tons in 
2005), mainly to Canada, but also Europe and other countries. The 
amount of coal exported is also increasing.
    According to the EIA, 72% of the projected increase in coal demand 
in the reference case scenario between 2004 and 2030 is attributed to 
the electric power sector and 28% is for production of synthetic fuels 
from coal using coal-to-liquids (CTL) technologies. The use of coal 
gasification technologies can also produce alternative fuels, such as 
hydrogen, as well as synthesized gas for industrial applications. 
Competition for coal use among these technologies will merit 
consideration in decisions regarding our coal resources and coal 
reserve base.
Coal Quality
    Studies of coal quality parameters have been a core component of 
the USGS Energy Resources Program research portfolio. The USGS has long 
conducted studies improving the understanding of the quality of the 
U.S. coal endowment. However, it is not an easy task to collect and 
analyze sufficient samples to fully understand this complex resource. 
Therefore, USGS has recently focused its efforts on studies that 
examine the feed coals and coal combustion products from individual 
coal-fired power plants (commonly referred to as ``cradle-to-grave 
studies''). Coal quality parameters that will be examined include 
elements in coal that can potentially have adverse effects on 
environmental quality and/or may be slated for regulation. Given the 
increasing attention on the impacts of coal utilization, coal-quality 
research must address a more comprehensive suite of coal quality-
related issues beyond the fundamental coal quality parameters such as 
ash yield, sulfur content, and heating value. This more comprehensive 
approach is vital to future coal assessments and future use of coal in 
this country.
    Using available basic coal quality parameters, a reconnaissance-
level survey can begin to identify coal resources that may have 
potential for use with various alternative technologies. However, 
additional process-specific parameters will be needed to more precisely 
evaluate and assess suitable resources. Working with experts in various 
conversion and combustion technologies, development of these parameters 
can be accomplished to determine the appropriate level of USGS 
contribution.
Conclusion
    In conclusion, Mr. Chairman, coal is an important component of the 
Nation's energy portfolio, which powers our expanding economy. The U.S. 
Geological Survey has been working with other agencies and has taken 
steps in several scientific endeavors to better understand our coal 
resource endowment, the quality of those resources, and how those 
resources may contribute to our coal reserve base and the Nation's 
energy mix. We stand ready to respond to the ongoing need for energy 
development from a variety of sources and in new ways.
    Thank you for the opportunity to highlight a few of the steps USGS 
has taken to improve the understanding of the Nation's coal resources. 
This concludes my testimony. I would be happy to answer any questions 
you may have.
                                 ______
                                 
    Mr. Gibbons. Actually, Brenda, that was remarkably well 
timed.
    [Laughter.]
    Ms. Pierce. Good. Thank you.
    Mr. Gibbons. You actually quit one second over. Let us hope 
that the men sitting to your left over there can do as well.
    Actually you did very well. Thank you for your testimony. 
It was very enlightening.
    We will turn now to Milt Copulos, National Defense Council 
Foundation. Milt, welcome back. We look forward to your 
testimony.

          STATEMENT OF MILTON R. COPULOS, PRESIDENT, 
              NATIONAL DEFENSE COUNCIL FOUNDATION

    Mr. Copulos. Thank you, Mr. Chairman. It is a privilege to 
be here. I must take a moment to commend the committee for its 
longstanding efforts to make people aware of our energy 
dilemma. You were talking about it long before the current 
crisis when few others were.
    It is impossible to listen to a news broadcast or read a 
newspaper without seeing reports of our citizens outraged over 
high gas prices, but if they knew what they were really paying, 
the full cost of it, they would be even more exercised.
    The simple fact is that what you pay at the pump does not 
include many of the actual costs that while they do not appear 
they are nonetheless real. As we discussed in 2003, the 
National Defense Council Foundation actually looked at these 
costs. We did the most comprehensive analysis that has ever 
been attempted. At that time we concluded that our country was 
spending $304.9 billion a year in hidden costs to support its 
oil import habit.
    However, things have changed since then, and we decided it 
was long past time to take another look at it because we 
thought there would be some increase. I will have to say until 
we started crunching the numbers I had no idea of the magnitude 
of the change.
    In our base year we spent $99 billion to buy imported oil. 
This year we will spend at least $320 billion. At least. In our 
base year, as I said, it was $304.9 billion. This year the 
hidden costs come to a total of $825.1 billion, which is almost 
twice as much as the Fiscal Year 2006 Defense Department 
authorization. That includes $132.8 billion in direct defense 
related costs and many, many others.
    What that boils down to is it is the equivalent of adding 
$8.35 to the price of a gallon of gasoline. What that means is 
that if you have an average U.S. sedan, it is really costing 
$225 for a fill up and for an SUV $338.
    There is a lot more at stake than just money because when 
we are talking about money flowing overseas we are talking 
about capital investment and, in the end, jobs because there is 
a human toll that it takes. In this case 2.24 million jobs.
    The loss of these jobs means that there are families that 
will not buy homes, will not send their kids to college, cannot 
prepare for their retirement. We have to, looking at this, ask 
ourselves how did we get into this mess? Well, as Pogo said, we 
have met the enemy, and they are us.
    The 1973 oil embargo warned us of the danger, but we did 
nothing. We are importing almost twice as much oil today on a 
percentage basis and more than twice as much on a volumetric 
basis than we did in 1973.
    There is this obsession with finding the silver bullet, 
that single solution written large across the sky by the 
flaming finger of God. Well, there is no such animal. The fact 
is we do not have the luxury of selectivity, and now we also do 
not have the luxury of time.
    It is projected in 2025 we are going to need 120 million 
barrels of oil a day to meet world demand, and I do not know 
where it is going to come from, so clearly we must do 
something. One of the things that we should do and can do is 
take advantage of our vast coal resources.
    As the Chairman said, the technology is not new. It is over 
80 years old. We know how to do it. South Africa produces 
200,000 barrels a day of synthetic fuels from coal. It can be 
done in an environmentally safe fashion, and it can produce an 
environmentally superior fuel.
    Moreover, from the Department of Defense's standpoint it is 
very important because DOD has gone to single fuel concept. 
They use nothing but JP-8. That is the plan. The trouble is no 
matter what you do to a barrel of oil, only 12.5 percent of it 
roughly is going to be jet fuel. That means that for each 
barrel of military fuel you require, you require eight barrels 
of oil to produce it. Using coal liquids could avoid this.
    There are a number of things we can do, the most important 
of which I believe is to establish a floor price which is, by 
the way, fuel neutral and helps all alternatives. We should 
also look at DOD doing forward purchases. Finally, I think it 
is important for the committee to go on record and make its 
point to the Department of Defense that they should be looking 
into this.
    Coal is not going to be enough by itself. We are going to 
have to do everything. We are going to have to conserve. We are 
going to have to produce. We are going to have to use all of 
the resources available. The reason is if we do not, we are 
going to be faced with a Hobson's choice between economic 
collapse and global resource war, and that would be the 
greatest environmental catastrophe of all.
    Thank you.
    [The prepared statement of Mr. Copulos follows:]

              Statement of Milton R. Copulos, President, 
                  National Defense Council Foundation

    My name is Milton R. Copulos, and I am President of the National 
Defense Council Foundation.
    I would like to thank Chairman Gibbons for giving me the 
opportunity to speak with the Committee today and I would also like to 
commend him for his leadership addressing our nation's perilous energy 
dependence.
A Headlong Rush Into Disaster
    America is rushing headlong into disaster. What is worse, however, 
is that it is a disaster of our own design.
    More than three decades have passed since the 1973 Arab Oil Embargo 
first alerted the Nation to its growing oil import vulnerability. Yet, 
despite this warning, we are now importing more than twice as much oil 
in absolute terms than we did in 1973, and the proportion of our oil 
supplies accounted for by imports is nearly double what is was then. 
What makes this dependence even more dangerous than it was three 
decades ago is the fact that the global market has become a far more 
competitive place with the emerging economies of China, India and 
Eastern Europe creating burgeoning demand for increasingly scarce 
resources.
    Indeed, over the past decade the Chinese economy has grown at a 
frenetic pace, officially estimated at 9.2 percent in 2005. India's 
growth rate for that year was 7.1 percent. In Eastern Europe, Belarus 
grew at 7.8 percent, the Czech Republic at 4.6 percent and the Ukraine 
at 4.4 percent. This compares with 3.5 percent for the United States, 
2.1 percent for Japan and 1.7 percent for the European Union.
    As a result of this explosive growth, oil consumption in the 
developing countries is expected to increase at a rate of 3 percent 
annually over the next two decades. But even this figure may severely 
understate the problem. Indeed, China alone has accounted for 40 
percent of the total increase in world oil consumption over the past 
several years. India too is rapidly expanding its consumption with a 28 
percent increase predicted over the next five years.
    Moreover China plans to add 120 million vehicles to its automobile 
fleet over the next decade, ultimately requiring 11.7 million barrels 
per day of new crude oil supplies. Nor it is alone in expanding vehicle 
use. Consider this fact: in 1970, there were 246 million privately 
owned vehicles in the world. Today, there are 800 million and 60 
million new cars are produced each year. As a result, even with 
retirements, by 2025, the global vehicle fleet is expected to reach 1.1 
billion.
    Given this burgeoning demand, even conservative estimates suggest 
that more than 30 million barrels per day of new oil supplies will be 
required by the year 2025 just to service the developing world's 
requirements. When Europe and the Americas are included the requirement 
is closer to 40 million barrels per day. As a result, EIA estimates 
that the world will consume over 120 million barrels of oil daily in 
2025. It is doubtful that new supplies sufficient to meet this 
skyrocketing demand will be found from conventional sources.
Uncertain Suppliers
    Nor is it just the potential physical shortfall of resources that 
is a source of concern. An even greater concern lies in the instability 
of U.S. sources of oil imports.
    The top six sources of U.S. oil imports, Canada, Mexico, Saudi 
Arabia, Venezuela, Nigeria and Iraq account for 65.1 percent of all 
foreign crude reaching our shores and 38.9 percent of total domestic 
consumption. Of these, four, Saudi Arabia, Venezuela, Nigeria and Iraq 
provide 38.2 percent of oil imports and 22.6 percent of total 
consumption. For a variety of reasons, none of the four I just 
mentioned can be considered a reliable source of supply.
    Venezuela's President Hugo Chavez is a vocal opponent of the United 
States who has twice threatened to cut off oil shipments to the U.S.
    Nigeria's production has been repeatedly disrupted by civil unrest, 
and some 135,000 barrels of oil per day are lost to theft.
    Last month, a terrorist attack on the massive Saudi oil processing 
facility at Abqaiq was barely thwarted, but not before two of the 
terrorist's explosive-laden cars were detonated. Moreover, this was not 
the only instance of an attempt to disrupt the flow of Saudi oil. In 
the summer of 2002, Saudi Interior Ministry forces blocked an al-Qaeda 
plot to attack and cripple the loading dock at Ras Tanura which handles 
10 percent of the world's oil supplies.
    Attacks on oil facilities in Iraq are a frequent occurrence.
    Nor are the attacks on U.S. oil supplies a coincidence. In December 
of 2004, al-Qaeda issued a fatwa that said in part:
        ``We call on the mujahideen in the Arabian Peninsula to unify 
        their ranks and target the oil supplies that do not serve the 
        Islamic nation but the enemies of this nation.''
    The fatwa went onto declare:
        ``Be active and prevent them from getting hold of our oil and 
        concentrate on it particularly in Iraq and the Gulf.''
    Clearly, given the instability that characterizes four of our top 
six sources of oil, the question is not whether we will experience a 
supply disruption, but rather when. The disruption could occur as a 
consequence of a terrorist act, or could result from a politically 
motivated embargo. In the end, it doesn't really matter why a 
disruption occurs, because the consequences would be identical, and 
severe.
The Consequences of Disruption
    The supply disruptions of the 1970s cost the U.S. economy between 
$2.3 Trillion and $2.5 Trillion. Today, such an event could carry a 
price tag as high as $8 Trillion--a figure equal to 62.5 percent of our 
annual GDP or nearly $27,000 for every man, woman and child living in 
America.
    But there is more cause for concern over such an event than just 
the economic toll. A supply disruption of significant magnitude, such 
as would occur should Saudi supplies be interdicted, would also 
dramatically undermine the Nation's ability to defend itself.
    Oil has long been a vital military commodity, but today has taken 
on even more critical importance. Several examples illustrate this 
point:
      A contemporary U.S. Army Heavy Division uses more than 
twice as much oil on a daily basis as an entire World War II field 
army.
      The roughly 582,000 troops dispatched to the Persian Gulf 
used more than twice as much oil on a daily basis as the entire 2-
million man Allied Expeditionary Force that liberated Europe in World 
War II.
      In Operation Iraqi Freedom, the oil requirement for our 
armed forces was 20 percent higher than in the first Gulf War, 
Operation Desert Storm, and now amount to one barrel of refined 
petroleum products per day for each deployed service member.
    Moreover, the military's oil requirements will be even higher in 
the future.
    Therefore, a shortage of global oil supplies not only holds the 
potential to devastate our economy, but could hamstring our armed 
forces as well.
The Hidden Cost of Imported Oil
    While it is broadly acknowledged that our undue dependence on 
imported oil would pose a threat to the Nation's economic and military 
security in the event of a supply disruption, less well understood is 
the enormous economic toll that dependence takes on a daily basis.
    The principal reason why we are not fully aware of the true 
economic cost of our import dependence is that it largely takes the 
form of what economists call ``externalities,'' that is, costs or 
benefits caused by production or consumption of a specific item, but 
not reflected in its pricing. It is important to understand that even 
though external costs or benefits may not be reflected in the price of 
an item, they nonetheless are real.
    In October of 2003, my organization, The National Defense Council 
Foundation, issued ``America's Achilles Heel: The Hidden Costs of 
Imported Oil,'' a comprehensive analysis of the external costs of 
imported oil. The study entailed the review of literally hundreds of 
thousands of pages of documents, including the entire order of battle 
of America's armed forces and more than a year of effort. Its 
conclusions into divided the externalities into three basic categories: 
Direct and Indirect economic costs, Oil Supply Disruption Impacts and 
Military Expenditures.
    Taken together, these costs totaled $304.9 billion annually, the 
equivalent of adding $3.68 to the price of a gallon of gasoline 
imported from the Persian Gulf.
    As high as these costs were, however, they were based on a crude 
oil refiner acquisition cost of $26.92. Today, crude oil prices are 
hovering around $60 per barrel and could easily increase significantly. 
Indeed, whereas in 2003 we spent around $99 billion to purchase foreign 
crude oil and refined petroleum products, in 2005 we spent more than 
$251 billion, and this year we will spend at least $320 billion.
    But skyrocketing crude oil prices were not the only factor 
affecting oil-related externalities. Defense expenditures also changed.
    In 2003, our armed forces allocated $49.1 billion annually to 
maintaining the capability to assure the flow of oil from the Persian 
Gulf.
    I should note that expenditures for this purpose are not new. 
Indeed, last year marked the 60th anniversary of the historic meeting 
between Saudi monarch King Abdul Aziz and U.S. President Franklin 
Roosevelt where he first committed our nation to assuring the flow of 
Persian Gulf oil--a promise that has been reaffirmed by every 
succeeding President, without regard to party.
    In 1983 the implicit promise to protect Persian Gulf oil supplies 
became an explicit element of U.S. military doctrine with the creation 
of the United States Central Command, CENTCOM. CENTCOM's official 
history makes this clear stating in part:
        ``Today's command evolved as a practical solution to the 
        problem of projecting U.S. military power to the Gulf region 
        from halfway around the world.''
    I am stressing the long-standing nature of our commitment to the 
Gulf to underscore the fact that our estimates of military expenditures 
there are not intended as a criticism. Quite the opposite, in fact. 
Without oil our economy could not function, and therefore protecting 
our sources of oil is a legitimate defense mission, and the current 
military operation in Iraq is part of that mission.
    To date, supplemental appropriations for the Iraq War come to more 
than $251 billion, or an average of $83.7 billion per year. As a 
result, when other costs are included, the total military expenditures 
related to oil now total $132.7 billion annually.
    So, where does that leave us?
    In 2003, as noted, we estimated that the ``hidden cost'' of 
imported oil totaled $304.9 billion. When we revisited the external 
costs, taking into account the higher prices for crude oil and 
increased defense expenditures we found that the ``hidden cost'' had 
skyrocketed to $779.5 billion in 2005. That would be equivalent to 
adding $4.10 to the price of a gallon of gasoline if amortized over the 
total volume of imports. For Persian Gulf imports, because of the 
enormous military costs associated with the region, the ``hidden cost'' 
was equal to adding $7.41 cents to the price of a gallon of gasoline. 
When the nominal cost is combined with this figure it yields a ``true'' 
cost of $9.53 per gallon, but that is just the start.
    Because the price of crude oil is expected to remain at least 
within the $60 range this year, expenditures for imports are expected 
to be at least $320 billion this year. That amounts to an increase of 
$70 billion in spending for foreign oil in just one year. That increase 
would raise the total import premium or ``hidden cost'' to $825.1 
billion, or almost twice the President's $419.3 billion defense budget 
request for Fiscal Year 2006. If all costs are amortized over the total 
volume of imports, that would be equivalent to adding $5.04 to the 
price of a gallon of gasoline. For Persian Gulf imports, the premium 
would be $8.35. This would bring the ``real'' price of a gallon of 
gasoline refined from Persian Gulf oil to $10.86. At these prices the 
``real'' cost of filling up a family sedan is $217.20, and filling up a 
large SUV $325.80.
    But, can anything be done about this enormous drain on our economy?
    The answer to that question is yes. But first we must clearly 
understand what is needed.
Defining The Problem
    The simple truth is that we do not suffer from a lack of energy 
resources. Rather, what we suffer from is a lack of the political will 
and public consensus to use them.
    As Pogo said, ``We have met the enemy and they is us.''
    What then can we do?
    The first step is to recognize that the immediate problem we face 
is how to assure adequate fuel supplies for the 220 million privately 
owned vehicles on the road today and for the vehicles and aircraft upon 
which our military relies. Within the civilian fleet, vehicles have an 
average lifespan of 16.8 years. The average age of our civilian vehicle 
fleet is 8.5 years. Therefore we will require conventional fuels or 
their analogs for at least a decade, even if every new vehicle produced 
from this day forth runs on some alternative.
    The military's tactical fleet presents an even more complex 
problem. DOD assigns a twenty-year service life to vehicles when they 
are initially acquired. Upon reaching the twenty-year mark, however, 
they are recapitalized, in essence adding an additional two decades to 
their expected service period. For example, the HUMMVV, one of the most 
basic vehicles was first introduced in 1985, and will be in service for 
the foreseeable future. Therefore, for all practical purposes we must 
assume that our tactical fleet will be around for at least forty years.
    For aircraft, the service life can be even longer.
    The venerable B-52 Stratofortress, was first introduced in 1955, 
and is expected to remain in service at least until 2040. The C-130, 
first introduced in 1956, is still in production today, 50 years later. 
The F-15 Eagle was introduced in 1976, thirty years ago, and the F-16 
Fighting Falcon in 1978, twenty-eight years ago.
    So, clearly, conventional fuels will remain a military necessity 
for decades to come.
    But there is another problem associated with our military fuel 
requirements: the move to a single fuel.
Special Considerations for Military Use
    In 1990, the Department of Defense initiated implementation of the 
``Single Fuel Concept,'' or SFC. The notion of going to a single fuel 
grew out of operational problems encountered in Europe in the early 
1980s. The idea was straightforward enough: simplify fuel logistics by 
having one type of fuel for all aircraft and ground vehicles. This 
would hopefully lower costs and improve performance. DOD selected JP8 
as their choice as a single fuel.
    The only problem with this decision is that it presumes adequate 
refinery capacity to produce JP8 in the required quantities. In 
peacetime operations, DOD uses around 277,000 barrels of motor fuel per 
day. In combat operations this figure will rise to 450,000 barrels per 
day or more. Unfortunately, in conventional refineries, only around 
one-eighth of a barrel of oil is converted into jet fuel. Therefore, 
some 3.6 million barrels of oil would have to be processed in order to 
produce the 450,000 barrels of JP8 the military is likely to use in a 
major regional conflict.
    The potential impact of a sudden increase in the military's need 
for jet fuel was demonstrated dramatically during Operation Desert 
Storm when Saudi Arabia invoked force majure provisions of its 
contracts in order to divert all of its jet fuel production to the war 
effort. The ensuing global jet fuel shortage caused prices to spike 
sharply. As a result of the price increase, Eastern Airlines, which was 
already in financial trouble, could not sustain operations and on 
January 18, 1991, it closed its doors after 65 years in business.
    So, how can we address the civilian and military need for 
conventional fuels in an ever-tightening market? One answer is to use 
one of our most abundant fuels: coal.
Coal is an Answer
    America is the Saudi Arabia of coal. Our nation has 275 million 
tons of demonstrated recoverable reserves, 26 percent of the world 
total. Further, the technology to convert coal into useable motor fuel 
has existed since the 1920s and has been in widespread use since the 
1930s.
    During World War II, Germany, lacking domestic oil resources, 
initiated a massive program to produce synthetic fuels. At its peak, in 
1944 Germany was operating 25 synthetic fuels plants that produced an 
average of 124,000 barrels of synthetic fuel per day to power its 
military.
    Currently, South Africa produces around 200,000 barrels of 
synthetic fuel from coal per day, and has just won approval from 
British aviation authorities to use an aviation fuel that is a 50/50 
blend of synthetic and natural products. In addition, Shell Oil is 
currently operating a 14,500 barrel per day Fischer-Tropsch gas-to-
liquids plant in Malaysia, and plans to build three large facilities in 
Qatar have been announced. These include a 140,000 barrel per day plant 
being built by Shell, a 160,000 barrel per day plant being built by 
Conoco and a 120,000 barrel per day plant being built by Marathon. In 
total, some 1.7 million barrels per day of G-T-L capacity are under 
consideration worldwide.
    The idea of using domestic coal to produce synthetic motor fuels is 
not new.
    In June of 1942, the House Committee on Mines and Mining held 
hearings on the potential to produce gasoline, rubber and other 
products from coal. In August of the following year the Senate 
Committee on Public Lands and Surveys held additional hearings on the 
production of synthetic liquid fuels from coal. As a consequence of 
these hearings the Synthetic Liquid Fuels Act was approved on April 5, 
1944 authorizing the expenditure of $30 million to fund a five-year 
synthetic fuels demonstration program.
    In 1946, West Virginia Representative Jennings Randolph said:
        ``We cannot survive a prolonged famine in liquid fuels. We must 
        not rely on uncertain foreign sources. It is in the interest of 
        national security, it is imperative that an American synthetic 
        liquid-fuels industry be established as soon as possible before 
        another national emergency.''
    Given this early interest, what happened?
    The advent of cheap oil from the Middle East undercut the economic 
viability of synthetic fuels.
    Unfortunately, this process would be repeated time and time again 
whenever it appeared that economic conditions would finally provide a 
favorable environment for synthetic fuel production.
    Today it appears that the economic conditions necessary to permit 
using America's vast coal resources have finally materialized.
    How then can accomplish the task of transforming coal into useful 
motor fuels?
    Perhaps the easiest way would be to use what we know works: the 
Fischer-Tropsch process.
Making Liquid Fuels from Coal
    The process of making synthetic liquid fuels begins with converting 
coal to a gas. This can be accomplished through a variety of methods, 
all of which heat coal to create a char that reacts with carbon dioxide 
and steam to create what is called a ``synthesis gas.'' This synthesis 
gas is a combination of hydrogen and carbon monoxide. The synthesis gas 
is then subjected to an iron or cobalt catalyst through the Fischer-
Tropsch process to create a ``syncrude'' that can be refined into the 
desired fuel.
    There was considerable interest in the United States during the 
late 1970s and early 1980s regarding the use of the Fischer-Tropsch 
process to produce synthetic fuels. At the time, however, it was 
estimated that a crude oil price of around $45 per barrel was required 
to make synthetic fuel competitive. Therefore, the collapse of oil 
prices in the mid-1980s undermined its economic viability and most 
projects were abandoned.
    Since that time, there have been advances in the Fischer-Tropsch 
technology that have reduced costs significantly. More important, it is 
now likely that a floor for oil prices has been established at between 
$55 and $65 per barrel. At this level, the production of synthetic 
fuels from coal is clearly economic.
    But there are factors other than the direct economic costs that 
make an investment in developing a synthetic fuels capability prudent.
    First of all, unlike production of fuels from crude oil, the 
product mix derived from syncrude can be tailored to meet specific 
needs. For example, as noted earlier, the Department of Defense has 
moved to establish a uniform fuel for all of its vehicles and aircraft. 
It is possible to tailor synthetic fuel production to meet this 
specific need.
    A second point lies in the economic impact of moving to a 
domestically-based source of liquid fuels. Our current import 
dependence has robbed the Nation of at least 2.4 million jobs as a 
consequence of the hemorrhage of capital flowing abroad. Not only would 
this capital outflow cease, but hundreds of thousands of additional 
high-paying jobs would be created within the domestic economy to build 
and operate the new synthetic fuels industry.
    A third point is that fuels created through this process can be 
designed to have superior environmental qualities. Indeed, one of the 
major products of the Shell synthetic fuel plant in Malaysia is ultra-
low sulfur diesel fuel.
    Finally, it is important to remember that some portion of every 
dollar we spend on oil from abroad makes its way into the hands of 
individuals who wish us harm. The simple truth is that international 
terrorism stands on two financial pillars: oil and the drug trade. To 
the extent that we reduce the revenues generated by either of these 
activities, we hinder the ability of terrorists to operate.
    Clearly, the creation of a domestic industry to manufacture 
synthetic motor fuel from coal will entail an enormous expenditure of 
capital and scientific and technical resources. This cost, however, 
pales when compared with the estimated $825.1 billion annual price tag 
of our profligate import dependence. Still there are factors which must 
be overcome to make the potential of coal liquids a reality. Among the 
most important is market uncertainty,
    From the time of the earliest efforts to develop a domestic 
industry to produce motor fuels from coal, the uncertainty over oil 
prices has been a major barrier to obtaining the financing necessary 
for such an undertaking. In the period immediately following the Second 
World War, just as experiments were proving the practicality of 
producing liquid fuels from coal, the discovery of vast, inexpensive 
supplies of oil in the Middle East cooled interest in this research. 
When, in the wake of the 1973 Arab Oil Embargo and 1979 Iranian Oil 
Boycott, interest in coal liquids was renewed, predatory moves by Saudi 
Arabia to dramatically reduce prices again stopped efforts cold.
    Today, it is doubtful that such a dramatic turn in prices will 
occur again, but fears of such an eventuality are hindering the 
investment climate. There are a number of things, however, that can be 
done to address this situation.
    First, Congress could establish a floor price for oil at around 
$45. This has the advantage of being fuel-neutral. The simple fact is 
that virtually all alternative forms of motor fuel suffer from the same 
problem as coal liquids--they cannot compete with cheap oil. Yet, as I 
noted earlier, there are other ``hidden costs'' that are not accounted 
for but are nonetheless real. By creating a floor price, we guard 
against the prospect of a predatory move by the producing nations to 
destroy alternative fuel options in the early stages of their 
development.
    A second thing that can be done is to help encourage the production 
of alternative fuels such as coal liquids by having the government 
enter into purchase agreements with guaranteed prices. If prices rise, 
and I believe they will, the government will actually save money with 
such a program. Should prices be deliberately crashed, in order to 
eliminate the competition coal liquids or other alternatives represent, 
the investors who risked their funds to give the Nation greater energy 
security would have some measure of protection.
    A third thing that this Committee, specifically, could do would be 
to send a letter to the Department of Defense urging it to make fuels 
produced through the Fischer-Tropsch process a standard for DOD. This 
would at a minimum make defense planners take a serious look at the 
Fischer-Tropsch process as a means of assuring adequate fuels of a 
consistent quality.
    A final incentive that might be considered would be to provide 
royalty relief for fuels produced for the Department of Defense from 
domestic coal resources.
    Obviously, all of these options entail some sort of financial 
outlay or exposure. The level of exposure, however, is minimal when 
considered against the background of the enormous ``hidden costs'' and 
military vulnerability our current import dependence creates. The 
question, therefore, is not, whether we can afford such a program, 
rather it is whether we can afford any additional delay in its 
implementation.
    The simple fact is that our nation is in dire peril due to its 
excessive dependence on imported oil. But the situation is far from 
hopeless. We have the resources necessary to provide our nation's 
energy needs if we can only find the political will to do so.
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Mr. Copulos. We 
appreciate your testimony.
    We will turn now to Mr. David G. Hawkins, Natural Resources 
Defense Council. Mr. Hawkins, welcome. The floor is yours.

           STATEMENT OF DAVID G. HAWKINS, DIRECTOR, 
       CLIMATE CENTER, NATURAL RESOURCES DEFENSE COUNCIL

    Mr. Hawkins. Thank you very much, Mr. Chairman, and I thank 
you for the invitation to testify. I am David Hawkins, Director 
of the Climate Center at Natural Resources Defense Council.
    There are many realities that we have to confront. I want 
to focus on two of them. First, the United States and other 
countries have abundant coal resources that will continue to be 
used for decades to come. The second reality is that the U.S. 
and other countries will need to sharply reduce global warming 
emissions in the decades ahead, and the challenge for Congress, 
for industry and groups like my own is to work together to 
reconcile these two realities.
    NRDC believes that it is possible to reconcile continued 
use of coal with protecting the climate, but to do it we need 
to grapple now with the implications of today's energy 
investments on the global warming emissions that will result.
    Now, there are ways to use coal that can cut global warming 
emissions and ways to use it that would greatly increase those 
emissions. If we make it a priority today to pursue the coal 
technologies that can cut global warming emissions, we can make 
a huge difference in the world that we leave to our children.
    Let us walk through a few of these alternatives. First, 
using coal to make electricity can achieve very large 
reductions in carbon dioxide emissions if the carbon dioxide 
from those power plants is captured and sequestered deep 
underground. Now, all of the elements of this type of 
technology are commercially demonstrated today, but to get them 
deployed in the real world we need new policies, new 
incentives, new performance standards to make this happen. It 
is doable, and it will make an enormous difference if we do it 
or if we fail to do it.
    The second coal use that I would mention is to make 
fertilizer and other chemicals. As we know, the fertilizer 
industry in this country is shocked by the high and volatile 
natural gas prices, and coal technology can be used to make 
fertilizer. It can also be compatible with cutting global 
warming emissions again if the carbon dioxide from those 
production plants is captured. That is not likely to happen 
except for niche opportunities for enhanced oil recovery unless 
we have policies that put a premium on keeping CO2 
out of the air.
    The third area, using coal to make liquid fuels, which is 
the focus of today's hearing, is really much more problematic. 
Processing coal to make liquid fuel produces large amounts of 
CO2, and burning the fuel produces additional 
CO2, CO2 being carbon dioxide.
    If the CO2 at a coal-to-liquids plant is 
released into the air, the available information we have 
indicates that total CO2 emissions from the 
CO2 fuel production and use will be about 80 percent 
higher than from producing and burning gasoline or diesel from 
crude oil.
    If the CO2 from a coal-to-liquids plant is 
captured and kept out of the air then emissions would be about 
the same as for the current crude oil based system since the 
carbon in the liquid fuels themselves is about the same.
    That is the problem. That means that with today's 
technology a large, new coal-to-liquids program would not be 
compatible with the need to cut emission reductions. A decision 
today to pursue a large coal-to-liquids program could leave 
large stranded investments or impose higher compliance costs on 
others to meet any particular level of emission reductions that 
we and others act to adopt.
    Now, coal can play a role in the transportation sector that 
is compatible with our need to cut global warming emissions, 
and it can do that by making electricity at plants equipped 
with CO2 capture and storage. If it does that, that 
electricity can be supplied to fleets of hybrid vehicles that 
are capable of being plugged into the grid, and basically we 
can back out oil in that fashion.
    To conclude, Mr. Chairman, I would say that the impact of a 
large program that could occur for global warming, for 
conventional air pollution and damage due to expanded coal 
production are very substantial. Fortunately, we have a number 
of options that we can pursue to reduce our oil dependence and 
to protect our environment at the same time.
    We have outlined a number of measures in our report called 
Securing America that was produced by us and the Institute for 
the Analysis of Global Security that would cut oil dependence 
by more than three million barrels a day in 10 years and 
achieve cuts of more than 11 million barrels a day by 2025.
    That concludes my testimony, Mr. Chairman.
    [The prepared statement of Mr. Hawkins follows:]

               Statement of David G. Hawkins, Director, 
           Climate Center, Natural Resources Defense Council

    Thank you for the opportunity to testify today on the subject of 
the future of coal and its environmental impacts. My name is David 
Hawkins. I am director of the Climate Center at the Natural Resources 
Defense Council (NRDC). NRDC is a national, nonprofit organization of 
scientists, lawyers and environmental specialists dedicated to 
protecting public health and the environment. Founded in 1970, NRDC has 
more than 1.2 million members and online activists nationwide, served 
from offices in New York, Washington, Los Angeles and San Francisco.
    One of the primary reasons that the electric power, chemical, and 
liquid fuels industries have become increasingly interested in coal 
gasification technology in the last several years is the volatility and 
high cost of both natural gas and oil. Coal has the advantages of being 
a cheap, abundant, and a domestic resource compared with oil and 
natural gas. However, the disadvantages of conventional coal use cannot 
be ignored. From underground accidents and mountain top removal mining, 
to collisions at coal train crossings, to air emissions of acidic, 
toxic, and heat-trapping pollution from coal combustion, to water 
pollution from coal mining and combustion wastes, the conventional coal 
fuel cycle is among the most environmentally destructive activities on 
earth.
    But we can do better with both production and use of coal. And 
because the world is likely to continue to use significant amounts of 
coal for some time to come, we must do better. Energy efficiency 
remains the cheapest, cleanest, and fastest way to meet our energy and 
environmental challenges, while renewable energy is the fastest growing 
supply option. Increasing energy efficiency and expanding renewable 
energy supplies must continue to be the top priority, but we have the 
tools to make coal more compatible with protecting public health and 
the environment. With the right standards and incentives we can 
fundamentally transform the way coal is produced and used in the United 
States and around the world.
    In particular, coal use and climate protection do not need to be 
irreconcilable activities. While energy efficiency and greater use of 
renewable resources must remain core components of a comprehensive 
strategy to address global warming, development and use of technologies 
such as coal gasification in combination with carbon dioxide 
(CO2) capture and permanent disposal in geologic 
repositories under certain circumstances could enhance our ability to 
avoid a dangerous build-up of this heat-trapping gas in the atmosphere 
while creating a future for continued coal use.
    However, because of the long lifetime of carbon dioxide in the 
atmosphere and the slow turnover of large energy systems we must act 
without delay to start deploying these technologies. Current government 
policies are inadequate to drive the private sector to invest in carbon 
capture and storage systems in the time frame we need them. To 
accelerate the development of these systems and to create the market 
conditions for their use, we need to focus government funding more 
sharply on the most promising technologies. More importantly, we need 
to adopt reasonable binding measures to limit global warming emissions 
so that the private sector has a business rationale for prioritizing 
investment in this area.
    Congress is now considering proposals to gasify coal as a 
replacement for natural gas and oil\1\. These proposals need to be 
evaluated in the context of the compelling need to reduce global 
warming emissions steadily and significantly, starting now and 
proceeding constantly throughout this century. Because today's coal 
mining and use also continues to impose a heavy toll on America's land, 
water, and air, damaging human health and the environment, it is also 
critical to examine the implications of a substantial coal gasification 
program on these values as well.
Reducing Natural Gas and Oil Demand
    The nation's economy, our health and our quality of life depend on 
a reliable supply of affordable energy services. The most significant 
way in which we can achieve these national goals is to exploit the 
enormous scope to wring more services out of each unit of energy used 
and by aggressively promoting renewable resources. While coal 
gasification technology has been touted as the technology solution to 
supplement our natural gas and oil supply and reduce our dependence on 
natural gas and oil imports, the most effective way to lower natural 
gas and oil demand, and prices, is to waste less. America needs to 
first invest in energy efficiency and conservation to reduce demand, 
and to second promote renewable energy alternatives to supplement 
supply. Gasified coal may have a role to play, but in both the short-
term and over the next two decades, efficiency and renewables are the 
lead actors in an effective strategy to moderate natural gas and oil 
prices and balance our demand with reasonable expectations of supply.
Natural Gas
    We know that today's natural gas prices have had a particularly 
significant impact on the agricultural sector by raising the cost of 
making fertilizer among other products. We agree that effective steps 
should be taken to fix this problem. In our view a package of measures 
to increase the efficiency of current gas uses, substitution of 
renewable energy for other gas uses, and judicious use of coal 
gasification with CO2 capture and disposal would be the most 
effective program. With respect to the coal gasification component of 
this policy package, it is important to address and prevent the 
additional harmful impacts to land and water that would result if 
incremental coal production were carried out with current mining and 
production practices. As pointed out in Appendix A, current practices 
are causing unacceptable and avoidable levels of damage to land, water 
and mining communities.
    Increasing energy efficiency is far-and-away the most cost-
effective way to reduce natural gas consumption, avoid emitting carbon 
dioxide and other damaging environmental impacts. Technologies range 
from efficient lighting, including emerging L.E.D. lamps, to advanced 
selective membranes which reduce industrial process energy needs. 
Critical national and state policies include appliance efficiency 
standards, performance-based tax incentives, utility-administered 
deployment programs, and innovative market transformation strategies 
that make more efficient designs standard industry practice.
    Conservation and efficiency measures such as these can have 
dramatic impacts in terms of price and savings.\2\ Moreover, all of 
these untapped gas efficiency ``resources'' will expand steadily, as a 
growing economy adds more opportunities to secure long-lived savings. 
California has a quarter century record of using comparable strategies 
to reduce both natural gas consumption and the accompanying utility 
bills. Recent studies commissioned by the Pacific Gas & Electric 
Company indicate that, by 2001, longstanding incentives and standards 
targeting natural gas equipment and use had cut statewide consumption 
for residential, commercial, and industrial purposes (excluding 
electric generation) by more than 20 percent.
    Renewables can also play a key role in reducing natural gas prices. 
Adoption of a national renewable energy standard (RES) can 
significantly reduce the demand for natural gas, alleviating potential 
shortages. The Energy Information Administration (EIA) has found that a 
national 10 percent renewable energy standard could reduce gas 
consumption by 1.4 trillion cubic feet per year in 2020 compared to 
business as usual, or roughly 5 percent of annual demand.\3\
    Studies have consistently shown that reducing demand for natural 
gas by increasing renewable energy use will reduce natural gas prices. 
According to a report released by the U.S. Department of Energy's 
Lawrence Berkeley National Laboratory, ``studies generally show that 
each 1% reduction in national gas demand is likely to lead to a long-
term (effectively permanent) average reduction in wellhead gas prices 
of 0.8% to 2%. Reductions in wellhead prices will reduce wholesale and 
retail electricity rates and will also reduce residential, commercial, 
and industrial gas bills.''\4\ EIA found that increasing renewable 
energy to 10 percent by 2020 would result in $4.9 billion cumulative 
present value savings for industrial gas consumers, $1.8 billion to 
commercial customers, and $2.4 billion to residential customers.\5\ EIA 
also found that renewable energy can also reduce electricity bills.\6\ 
Lower natural gas prices for electricity generators and other consumers 
offset the slightly higher cost of renewable electricity technology.\7\
    Implementing effective energy efficiency measures is the fastest 
and most cost effective approach to balancing natural gas demand and 
supply. Renewable energy provides a critical mid-term to long-term 
supplement. Analysis by the Union of Concerned Scientists found that a 
combined efficiency and renewable energy scenario could reduce gas use 
by 31 percent and natural gas prices by 27 percent compared to business 
as usual in 2020.\8\
    In contrast to these strategies, pursuing coal gasification 
implementation strategies that address only natural gas supply 
concerns, while ignoring impacts of coal, is a recipe for huge and 
costly mistakes. Fortunately, we have in our tool box energy resource 
options that can reduce natural gas demand and global warming emissions 
as well as protecting America's land, water, and air.
Oil
    NRDC fully agrees that reducing oil dependence should be a national 
priority and that new policies and programs are needed to avert the 
mounting problems associated with today's dependence and the much 
greater dependence that lies ahead if we do not act. A critical issue 
is the path we pursue in reducing oil dependence: a ``green'' path that 
helps us address the urgent problem of global warming and our need to 
reduce the impacts of energy use on the environment and human health; 
or a ``brown'' path that would increase global warming emissions as 
well as other health and environmental damage. In deciding what role 
coal might play as a source of transportation fuel NRDC believes we 
must first assess whether it is possible to use coal to make liquid 
fuels without exacerbating the problems of global warming, conventional 
air pollution and impacts of coal production and transportation.
    If coal were to play a significant role in displacing oil, it is 
clear that the enterprise would be huge, so the health and 
environmental stakes are correspondingly huge. The coal company Peabody 
Energy is promoting a vision that would call for production of 2.6 
million barrels per day of synthetic transportation fuel from coal by 
2025, about 10% of forecasted oil demand in that year. According to 
Peabody, using coal to achieve that amount of crude oil displacement 
would require construction of 33 very large coal-to-liquids plants, 
each plant consuming 14.4 million tons of coal per year to produce 
80,000 barrels per day of liquid fuel. Each of these plants would cost 
$6.4 billion to build. Total additional coal production required for 
this program would be 475 million tons of coal annually requiring an 
expansion of coal mining of 43% above today's level.\9\
    This testimony does not attempt a thorough analysis of the impacts 
of a program of this scale. Rather, it will highlight the issues that 
should be addressed in a detailed assessment.
Environmental Impacts of Coal
    Some call coal ``clean.'' It is not and likely never will be 
compared to other energy options. Nonetheless, it appears inevitable 
that the U.S. and other countries will continue to rely heavily on coal 
for many years. The good news is that with the right standards and 
incentives it is possible to chart a future for coal that is compatible 
with protecting public health, preserving special places, and avoiding 
dangerous global warming. It may not be possible to make coal clean, 
but by transforming the way coal is produced and used, it is possible 
to make coal dramatically cleaner--and safer--than it is today.
Global Warming Pollution
    To avoid catastrophic global warming the U.S. and other nations 
will need to deploy energy resources that result in much lower releases 
of CO2 than today's use of oil, gas and coal. To keep global 
temperatures from rising to levels not seen since before the dawn of 
human civilization, the best expert opinion is that we need to get on a 
pathway now to allow us to cut global warming emissions by 60-80% from 
today's levels over the decades ahead. The technologies we choose to 
meet our future energy needs must have the potential to perform at 
these improved emission levels.
    Most serious climate scientists now warn that there is a very short 
window of time for beginning serious emission reductions if we are to 
avoid truly dangerous greenhouse gas reductions without severe economic 
impact. Delay makes the job harder. The National Academy of Sciences 
recently stated: ``Failure to implement significant reductions in net 
greenhouse gases will make the job much harder in the future--both in 
terms of stabilizing their atmospheric abundances and in terms of 
experiencing more significant impacts.''\10\
    In short, a slow start means a crash finish--the longer emissions 
growth continues, the steeper and more disruptive the cuts required 
later. To prevent dangerous global warming we need to stabilize 
atmospheric concentration at or below 450 ppm, which would keep total 
warming below 2 degrees Celsius (3.6 degrees Fahrenheit). If we start 
soon, we can stay on the 450 ppm path with an annual emission reduction 
rate that gradually ramps up to about 2.4% per year. But if we delay a 
serious start by 10 years and continue emission growth at the business-
as-usual trajectory, the annual emission reduction rate required to 
stay on the 450 ppm pathway jumps almost 3-fold, to 6.9% per year. (See 
Figure 1, attached.) Even if you do not accept today that the 450 ppm 
path will be needed please consider this point. If we do not act to 
preserve our ability to get on this path we will foreclose the path not 
just for ourselves but for our children and their children. We are now 
going down a much riskier path and if we do not start reducing 
emissions soon neither we nor our children can turn back no matter how 
dangerous the path becomes.
    In the past, some analysts have argued that the delay/crash action 
scenario is actually the cheaper course, because in the future 
(somehow) we will have developed breakthrough technologies. But it 
should be apparent that the crash reductions scenario is implausible 
for two reasons. First, reducing emissions by 6.9 percent per year 
would require deploying advanced low-emission technologies at least 
several times faster than conventional technologies have been deployed 
over recent decades. Second, the effort would require prematurely 
retiring billions of dollars in capital stock--high-emitting power 
plants, vehicles, etc. that will be built or bought during the next 10-
20 years under in the absence of appropriate CO2 emission 
limits.
    It also goes without saying that U.S. leadership is critical. 
Preserving the 450 ppm pathway requires other developed countries to 
reduce emissions at similar rates, and requires the key developing 
countries to dramatically reduce and ultimately reverse their emissions 
growth. U.S. leadership can make that happen faster.
    To assess the global warming implications of a large coal 
gasification program we need to carefully examine the total life-cycle 
emissions associated with the end product, whether electricity, 
synthetic gas, liquid fuels or chemicals, and to assess if the relevant 
industry sector will meet the emission reductions required to be 
consistent with the ``green'' pathway presented in Figure 1.
Electricity Sector
    More than 90 percent of the U.S. coal supply is used to generate 
electricity in some 600 coal-fired power plants scattered around the 
country, with most of the remainder used for process heat in heavy 
industrial and in steel production. Coal is used for power production 
in all regions of the country, with the Southeast, Midwest, and 
Mountain states most reliant on coal-fired power. Texas uses more coal 
than any other state, followed by Indiana, Illinois, Ohio, and 
Pennsylvania.\11\
    About half of the U.S. electricity supply is generated using coal-
fired power plants. This share varies considerably from state to state, 
but even California, which uses very little coal to generate 
electricity within its borders, consumes a significant amount of 
electricity generated by coal in neighboring Arizona and Nevada, 
bringing coal's share of total electricity consumed in California to 20 
percent.\12\ National coal-fired capacity totals 330 billion watts 
(GW), with individual plants ranging in size from a few million watts 
(MW) to over 3000 MW. More than one-third of this capacity was built 
before 1970, and over 400 units built in the 1950s--with capacity 
equivalent to roughly 100 large modern plants (48 GW)--are still 
operating today.
    The future of coal in the U.S. electric power sector is an 
uncertain one. The major cause of this uncertainty is the government's 
failure to define future requirements for limiting greenhouse gas 
emissions, especially carbon dioxide (CO2). Coal is the 
fossil fuel with the highest uncontrolled CO2 emission rate 
of any fuel and is responsible for 36 percent U.S. carbon dioxide 
emissions. Furthermore, coal power plants are expensive, long-lived 
investments. Key decision makers understand that the problem of global 
warming will need to be addressed within the time needed to recoup 
investments in power projects now in the planning stage. Since the 
status quo is unstable and future requirements for coal plants and 
other emission sources are inevitable but unclear, there will be 
increasing hesitation to commit the large amounts of capital required 
for new coal projects.
    Electricity production is the largest source of global warming 
pollution in the U.S. today. In contrast to nitrogen and sulfur oxide 
emissions, which have declined significantly in recent years as a 
result of Clean Air Act standards, CO2 emissions from power 
plants have increased by 27 percent since 1990. Any solution to global 
warming must include large reductions from the electric sector. Energy 
efficiency and renewable energy are well-known low-carbon methods that 
are essential to any climate protection strategy. But technology exists 
to create a more sustainable path for continued coal use in the 
electricity sector as well. Coal gasification can be compatible with 
significantly reducing global warming emissions in the electric sector 
if it replaces conventional coal combustion technologies, directly 
produces electricity in an integrated manner, and most importantly 
captures and disposes of the carbon in geologic formations. IGCC 
technology without CO2 capture and disposal achieves only 
modest reductions in CO2 emissions compared to conventional 
coal plants.
    A coal integrated gasification combined cycle (IGCC) power plant 
with carbon capture and disposal can capture up to 90 percent of its 
emissions, thereby being part of the global warming solution. In 
addition to enabling lower-cost CO2 capture, gasification 
technology has very low emissions of most conventional pollutants and 
can achieve high levels of mercury control with low-cost carbon-bed 
systems. However, it still does not address the other environmental 
impacts from coal production and transportation discussed in more 
detail in Appendix A.
    The electric power industry has been slow to take up gasification 
technology but two commercial-scale units are operating in the U.S.--in 
Indiana and Florida. The Florida unit, owned by TECO, is reported by 
the company to be the most reliable and economic unit on its system. 
Two coal-based power companies, AEP and Cinergy, have announced their 
intention to build coal gasification units. BP also has announced plans 
to build a petroleum coke gasification plant that will capture and 
sequester CO2.
Liquid Fuels
    To assess the global warming implications of a large coal-to-
liquids 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 double the amount of carbon per unit of energy compared to 
natural gas and about 20% more than petroleum. When coal is converted 
to liquid fuels, two streams of CO2 are produced: one at the 
coal-to-liquids production plant and the second from the exhausts of 
the vehicles that burn the fuel. With the technology in hand today and 
on the horizon it is difficult to see how a large coal-to-liquids 
program can be compatible with the low-CO2-emitting 
transportation system we need to design to prevent global warming.
    Today, our system of refining crude oil to produce gasoline, 
diesel, jet fuel and other transportation fuels, results in a total 
``well to wheels'' emission rate of about 27.5 pounds of CO2 
per gallon of fuel. Based on available information about coal-to-
liquids plants being proposed, the total well to wheels CO2 
emissions from such plants would be about 49.5 pounds of CO2 
per gallon, nearly twice as high as using crude oil, if the 
CO2 from the coal-to-liquids plant is released to the 
atmosphere.\13\ Obviously, introducing a new fuel system with double 
the CO2 emissions of today's crude oil system would conflict 
with the need to reduce global warming emissions. If the CO2 
from coal-to-liquids plants is captured, then well-to-wheels 
CO2 emissions would be reduced but would still be higher 
than emissions from today's crude oil system.\14\
    This comparison indicates that using coal to produce a significant 
amount of liquids for transportation fuel would not be compatible with 
the need to develop a low-CO2 emitting transportation sector 
unless technologies are developed to significantly reduce emissions 
from the overall process. But here one confronts the unavoidable fact 
that the liquid fuel from coal contains the same amount of carbon as is 
in gasoline or diesel made from crude. Thus, the potential for 
achieving significant CO2 emission reductions compared to 
crude is inherently limited. This means that using a significant amount 
of coal to make liquid fuel for transportation needs would make the 
task of achieving any given level of global warming emission reduction 
much more difficult. Proceeding with coal-to-liquids plants now could 
leave those investments stranded or impose unnecessarily high abatement 
costs on the economy if the plants continue to operate.
Synthetic Gas
    Another area that has received interest is coal gasification to 
produce synthetic natural gas as a direct method of supplementing our 
natural gas supply from domestic resources. However, without 
CO2 capture and disposal this process results in more than 
twice as much CO2 per 1000 cubic feet of natural gas 
consumed compared to conventional resources.\15\ From a global warming 
perspective this is unacceptable. With capture and disposal the 
CO2 emissions can be substantially reduced, but still remain 
12 percent higher than natural gas.
    In Beulah, North Dakota the Basin Electric owned Dakota 
Gasification Company's Great Plains Synfuels Plant is a 900MW facility 
which gasifies coal to produce synthetic ``natural'' gas. It can 
produce a 150 million cubic feet of synthetic gas per day and 11,000 
tons of CO2 per day. However, it no longer releases all of 
its CO2 to the atmosphere, but captures most of it and pipes 
it 200 miles to an oil field near Weyburn, Saskatchewan. There the 
CO2 is pumped underground into an aging oil field to recover 
more oil. EnCana, operator of this oil field, pays $2.5 million per 
month for the CO2. They expect to sequester 20 million tons 
of CO2 over the lifetime of this injection project.
    A potential use for coal-produced synthetic gas would be to burn it 
in a gas turbine at another site for electricity generation. This 
approach would result in substantially higher CO2 emissions 
than producing electricity in an integrated system at the coal 
gasification plant with CO2 capture at the site (i.e., in an 
IGCC plant with carbon capture and disposal). Coal produced synthetic 
natural gas could also be used directly for home heating. As a 
distributed source of emissions the CO2 would be prohibitive 
to capture with known technology.
    Before producing synthetic pipeline gas from coal a careful 
assessment of the full fuel cycle emission implications and the 
emission reductions that are required from that sector must be carried 
out before decisions are made to invest in these systems.
Chemical Products
    The chemical industry has also been looking carefully at coal 
gasification technology as a way to replace the natural gas feedstock 
used in chemical production. The motivator has been the escalating and 
volatile costs of natural gas in the last few years. A notable example 
in the U.S. of such a use is the Tennessee Eastman plant, which has 
been operating for more than 20 years using coal instead of natural gas 
to make chemicals and industrial feedstocks. If natural gas is replaced 
by coal gasification as a feedstock for the chemical industry, first 
and foremost CO2 capture and disposal must be an integral 
part of such plants. In this case, the net global warming emissions 
will change relatively little from this sector. However, before such a 
transformation occurs a careful analysis of the life cycle emissions 
needs to be carried out along with an assessment of how future 
emissions reductions from this sector can be most effectively 
accomplished.
CO2 Capture and Disposal
    Methods to capture CO2 from industrial gas streams have 
been in use for decades. In the U.S., for example, they are used to 
separate CO2 from ``sour gas'' at natural gas processing 
plants and are even in use at a few coal-fired power plants to produce 
CO2 for sale to the food and beverage industries. As 
previously mentioned, in North Dakota a large coal gasification plant 
captures CO2 and ships it by pipeline to an oil field in 
Saskatchewan, where it is injected to produce additional oil. In 
Wyoming, a large gas processing plant captures CO2 for sale 
to oil field operators in that state and in Colorado. Smaller plants in 
Texas do the same thing to serve oil fields in the Permian Basin.
    Once captured, the CO2 must be disposed of and the 
currently viable approach is to inject the CO2 into deep 
geologic formations that are capable of permanently retaining it. 
Geologic injection of CO2 has been underway in the U.S. for 
a couple of decades as a method for producing additional oil from 
declining fields. Today, oil companies inject about 30 million tons 
annually into fields in the Permian Basin, Wyoming, Colorado and other 
states.
    Because industrial sources can emit CO2 for free under 
current U.S. policy, most of the injected CO2 is supplied 
from natural CO2 reservoirs, rather than being captured from 
emission sources. Ironically, due to the lack of emission limits and 
the limited number of natural CO2 fields, a CO2 
supply shortage is currently constraining enhanced oil recovery from 
existing fields. There is, of course, a huge supply of CO2 
from power plants and other sources that would become available to 
supply this market, but that will not happen as long as CO2 
can be emitted at no cost.
    Such enhanced oil recovery (EOR) operations are regulated to 
prevent releases that might endanger public health or safety but they 
are not monitored with any techniques that would be capable of 
detecting smaller leak rates. Small leak rates might pose no risk to 
the local surroundings but over time could undercut the effectiveness 
of geologic storage as a CO2 control technique. Especially 
in EOR operations, the most likely pathways for leakage would be 
through existing wells penetrating the injection zone.
    Much of the injected CO2 is also brought back to the 
surface with the oil produced by this technique. That CO2 is 
typically reinjected to recover additional oil, but when oil operations 
are completed it may be necessary to inject the CO2 into a 
deeper geologic formation to ensure permanent storage.
    In addition to these EOR operations, CO2 is being 
injected in large amounts in several other projects around the world. 
The oldest of these involves injection of about 1 million tons per year 
of CO2 from a natural gas platform into a geologic formation 
beneath the sea bed off the coast of Norway. The company decided to 
inject the CO2 rather than vent it to avoid paying an 
emission charge adopted by the Norwegian government--a clear example of 
the ability of emission policies to produce the deployment of this 
technology. The Norwegian operation is intensively monitored and the 
results from over seven years of operation indicate the CO2 
is not migrating in a manner that would create a risk of leakage. Other 
large-scale carefully monitored operations are underway at the Weyburn 
oil field in Saskatchewan and the In Salah natural gas field in 
Algeria.
    While additional experience with large-scale injection in various 
geologic formations is needed, we believe enough is known to expand 
these activities substantially under careful procedures for site 
selection, operating requirements and monitoring programs. The 
imperative of avoiding further carbon lock-in due to construction of 
conventional coal-fired power plants and the capabilities of 
CO2 capture and disposal technologies today warrant policies 
to deploy these methods at coal gasification plants without further 
delay.
Conventional Air Pollution
    Dramatic reductions in power plant emissions of criteria 
pollutants, toxic compounds, and global warming emissions are essential 
if coal is to remain a viable energy resource for the 21st Century. 
Such reductions are achievable in integrated gasification combined 
cycle (IGCC) systems, which enable cost-effective advanced pollution 
controls that can yield extremely low criteria pollutant and mercury 
emission rates and facilitates carbon dioxide capture and geologic 
disposal. Gasifying coal at high pressure facilitates removal of 
pollutants that would otherwise be released into the air such that 
these pollutant emissions are well below those from conventional 
pulverized coal power plants with post combustion cleanup.
    Conventional air emissions from coal-to-liquids plants include 
sulfur oxides, nitrogen oxides, particulate matter, mercury and other 
hazardous metals and organics. While it appears that technologies exist 
to achieve high levels of control for all or most of these pollutants, 
the operating experience of coal-to-liquids plants in South Africa 
demonstrates that coal-to-liquids plants are not inherently ``clean.'' 
If such plants are to operate with minimum emissions of conventional 
pollutants, performance standards will need to be written--standards 
that do not exist today in the U.S. as far as we are aware.
    In addition, the various federal emission cap programs now in force 
would apply to few, if any, coal-to-liquids plants.\16\
    Thus, we cannot say today that coal-to-liquids plants will be 
required to meet stringent emission performance standards adequate to 
prevent either significant localized impacts or regional emissions 
impacts.
Mining, Processing and Transporting Coal
    The impacts of mining, processing, and transporting 1.1 billion 
tons of coal today on health, landscapes, and water are large. To 
understand the implications of continuing our current level of as well 
as expanding coal production, it is important to have a detailed 
understanding of the impacts from today's level of coal production. A 
summary is included in Appendix A. It is clear that we must find more 
effective ways to reduce the impacts of mining, processing and 
transporting coal before we follow a path that would result in even 
larger amounts of coal production and transportation.
``Carbon Capture Ready'' and the ``Energy Policy Act of 2005''
     Among the various environmental concerns associated with coal use, 
the global warming emissions are particularly critical as coal fired 
power generation emits more carbon dioxide per unit of energy than any 
other power generating process. It is clear that for coal to remain a 
major source of electricity generation within a carbon constrained 
world, carbon capture and disposal technologies will have to be 
deployed in conjunction coal fired power plants.
    The required elements of a coal-based CO2 capture and 
disposal (CCD) system have all been demonstrated at commercial scale in 
numerous projects around the world. But there is large potential for 
optimization of each element to bring down costs and improve 
efficiency. In addition, the experience with large scale injection of 
CO2 into geologic formations is still limited.
    In the ``Energy Policy Act of 2005'' (EPACT05), while there are 
myriad incentives for deploying coal gasification technology, there are 
no requirements to include CO2 capture and disposal. 
Scattered throughout the Act is language referring to the capability of 
coal gasification technology to capture its carbon emissions or to be 
``carbon capture ready''. However, nothing requires the facilities to 
actually capture and dispose of their CO2 emissions. Several 
examples are the following:
      Title IV--Coal--section 413 (b)(3) Western Integrated 
Coal Gasification Demonstration Project: ``Shall be capable of removing 
and sequestering carbon dioxide emissions.''
      Title VIII--Hydrogen--section 805(e)(1)(A) ``Fossil fuel, 
which may include carbon capture and sequestration;''
      Title XIII--Energy Policy Tax Incentives--section 1307(b) 
``Sec. 48A. (c) Definitions (5) GREENHOUSE GAS CAPTURE CAPABILITY--The 
term `greenhouse gas capture capability' means an integrated 
gasification combined cycle technology facility capable of adding 
components which can capture, separate on a long-term basis, isolate, 
remove, and sequester greenhouse gases which result from the generation 
of electricity.''
        ``Sec. 48B. (c) Definitions (5) CARBON CAPTURE CAPABILITY--The 
term `carbon capture capability' means a gasification plant design 
which is determined by the Secretary to reflect reasonable 
consideration for, and be capable of, accommodating the equipment 
likely to be necessary to capture carbon dioxide from the gaseous 
stream, for later use or sequestration, which would otherwise be 
emitted in the flue gas from a project which uses a nonrenewable 
fuel.''
      Title XVII--Incentives for Innovative Technologies--
Section 1703(c)(1)(A)(ii) ``that have a design that is determined by 
the Secretary to be capable of accommodating the equipment likely to be 
necessary to capture the carbon dioxide that would otherwise be emitted 
in flue gas from the plant;''
    The issue I would like to address here is the definition of 
``carbon capture ready.'' Adding carbon capture capabilities to a coal 
gasification power plant is not a simple modification.\17\ Without any 
current regulatory or economic incentives for these facilities to 
capture and dispose of their carbon emissions the extent of the capture 
modifications that will be incorporated into the gasification 
facilities remains extremely unclear. I would, in fact, argue that due 
to the vagueness of this term the result will be a ``race to the 
bottom'', a minimal effort to incorporate the necessary design elements 
and equipment that would allow coal gasification plants to qualify for 
EPACT05 incentives.
    What are the required technical details associated with coupling 
coal gasification plants with carbon capture and disposal? Carbon 
capture in a coal gasification plant occurs after the coal gasification 
process. I will focus on the case for electricity generation (an IGCC 
plant) where the syngas produced then enters a gas turbine. It is at 
this stage that the chemical process can be inserted to separate and 
capture the CO2 and other pollutants from the syngas. Once 
the CO2 is separated it can be transported to a disposal 
location.
    In addition to adding the CO2 separation and capture 
equipment, changes in other components are also necessary for 
electricity generation case. The removal of CO2 prior to 
combustion in the turbine alters the composition of the gas to be 
burned, increasing the hydrogen content, which may affect the design or 
operational requirements of the turbine. In addition, the 
CO2 capture process may alter the optimal design of the 
desulphurization and other gas clean-up processes. For these reasons, 
an IGCC plant built without consideration for CO2 capture 
technology designed to produce power at a minimum cost and maximum 
efficiency will be significantly different than an IGCC plant designed 
to incorporate CO2 capture technology.
    ``Three major technological components need to be added to a basic 
IGCC plant to allow for separation and capture of the CO2: 
(1) the shift reactor to convert the CO in the syngas to 
CO2, (2) the process to separate the CO2 from the 
rest of the gas stream, and (3) a compressor to reduce the volume of 
separated CO2 before it can be transported.''\18\ 
Furthermore, other components will require modification, as previously 
mentioned, including the gas turbine that will have to be capable of 
operating with a hydrogen enriched gas stream, the timing of the 
sulphur removal process, plus some scaling up to accommodate the larger 
quantities of coal needed to generate the same amount of power.
    A further consideration is the CO2 transportation and 
disposal. Once the CO2 is captured and compressed at the 
plant it must be transported and injected into an underground geologic 
formation. Therefore, the location of the plant can also become a 
significant factor in the ease of transformation.
    What should be clear from this listing of requirements for 
integrating capture and disposal of CO2 into an existing 
IGCC plant is that the term ``carbon capture ready'' could encompass a 
whole host of definitions. Does it simply mean that one builds an IGCC 
plant? Does it mean that you leave space in the design for separation, 
capture and compression equipment? Does it mean you include the 
appropriate turbine to burn a high H2 gas stream? Does it mean you 
locate the plant within proximity to a geologic reservoir where the 
CO2 can be disposed of? The list and variations of the 
possibilities could go on and on, calling into question whether the 
term ``carbon capture ready'' has any real meaning.
    The likely result is that companies when taking advantage of the 
coal gasification incentives provided in the ``Energy Policy Act of 
2005'' will follow the least cost option, i.e., build an IGCC plant 
with little or no design elements necessary for the future integration 
of CO2 capture and disposal--unless there is a clear policy 
to reduce CO2 emissions or if it is required that they 
include all the necessary equipment to capture their CO2.
    NRDC strongly advocates that all government funds that leverage the 
building of coal gasification plants should only go to those facilities 
that actually capture their CO2. Subsidizing gasification by 
itself wastes taxpayers' money by subsidizing the wrong thing. 
Gasification is commercial and needs no subsidy but capture and storage 
is the primary policy objective and is likely to require subsidies 
pending adoption of CO2 emission control requirements.
    The first proposed coal gasification plant that will capture and 
dispose of its CO2 was recently announced on February 10, 
2006 by BP and Edison Mission Group. The plant will be built in 
Southern California and its CO2 emissions will be pipelined 
to an oil field nearby and injected into the ground to recover domestic 
oil. BP's proposal shows the technologies are available now to cut 
global warming pollution and that integrated IGCC with CO2 
capture and disposal are commercially feasible.
The Path Forward
    The impacts that a large coal gasification program could have on 
global warming pollution, conventional air pollution and environmental 
damage resulting from the mining, processing and transportation of the 
coal are substantial. Before deciding whether to invest scores, perhaps 
hundreds of billions of dollars in deploying this technology, we must 
have a program to manage our global warming pollution and other coal 
related impacts. Otherwise we will not be developing and deploying an 
optimal energy system.
    One of the primary motivators for pushing coal gasification 
technologies has been to reduce natural gas prices. Fortunately, the 
U.S. can have a robust and effective program to reduce natural gas 
demand, and therefore prices, without rushing to embrace coal 
gasification technologies. A combination of efficiency and renewables 
can reduce our natural gas demand more quickly and more cleanly.
    Implementing effective energy efficiency measures is the fastest 
and most cost effective approach to reducing natural gas demand. 
Efficiency standards, performance-based tax incentives, utility-
administered deployment programs, and innovative market transformation 
strategies will bring energy efficient technologies to market and make 
efficient designs standard industry practice.
    Renewable energy provides a critical mid-term to long-term 
supplement to natural gas use. Potential renewable resources in the 
U.S. are significant and renewable electricity generation is expanding 
rapidly, with wind and biomass currently offering the most cost-
effective power in both countries. Some 20 U.S. states have adopted 
renewable portfolio standards requiring electricity providers to obtain 
a minimum portion of their portfolio from renewable resources. Federal 
tax incentives have also played an important role, particularly for 
wind.
    The other major motivator for the push to use coal gasification is 
to produce liquid fuels to reduce our oil dependence. The U.S. can have 
a robust and effective program to reduce oil dependence without rushing 
into an embrace of coal-to-liquids technologies. A combination of more 
efficient cars, trucks and planes, biofuels, and ``smart growth'' 
transportation options outlined in report ``Securing America,'' 
produced by NRDC and the Institute for the Analysis of Global Security, 
can cut oil dependence by more than 3 million barrels a day in 10 
years, and achieve cuts of more than 11 million barrels a day by 2025, 
far outstripping the 2.6 million barrel a day program being promoted by 
Peabody.\19\ For further details see Appendix B.
    To reduce our dependence on natural gas and oil we should follow a 
simple rule: start with the measures that will produce the quickest, 
cleanest and least expensive reductions in natural gas use; measures 
that will put us on track to achieve the reductions in global warming 
emissions we need to protect the climate. If we are thoughtful about 
the actions we take, our country can pursue an energy path that 
enhances our security, our economy, and our environment.
    With current coal and oil consumption trends, we are headed for a 
doubling of CO2 concentrations by mid-century if we don't 
redirect energy investments away from carbon based fuels and toward new 
climate friendly energy technologies.
    We have to accelerate the progress underway and adopt policies in 
the next few years to turn the corner on our global warming emissions, 
if we are to avoid locking ourselves and future generations into a 
dangerously disrupted climate. Scientists are very concerned that we 
are very near this threshold now. Most say we must keep atmosphere 
concentrations of CO2 below 450 parts per million, which 
would keep total warming below 2 degrees Celsius (3.6 degrees 
Fahrenheit). Beyond this point we risk severe impacts, including the 
irreversible collapse of the Greenland Ice Sheet and dramatic sea level 
rise. With CO2 concentrations now rising at a rate of 1.5 to 
2 parts per million per year, we will pass the 450ppm threshold within 
two or three decades unless we change course soon.
    In the United States, a national program to limit carbon dioxide 
emissions must be enacted soon to create the market incentives 
necessary to shift investment into the least-polluting energy 
technologies on the scale and timetable that is needed. There is 
growing agreement between business and policy experts that quantifiable 
and enforceable limits on global warming emissions are needed and 
inevitable. To ensure the most cost-effective reductions are made, 
these limits can then be allocated to major pollution sources and 
traded between companies, as is currently the practice with sulfur 
emissions that cause acid rain. Targeted energy efficiency and 
renewable energy policies are critical to achieving CO2 
limits at the lowest possible cost, but they are no substitute for 
explicit caps on emissions.
    A coal integrated gasification combined cycle (IGCC) power plant 
with carbon capture and disposal can also be part of a sustainable path 
that reduces both natural gas demand and global warming emissions in 
the electricity sector. Methods to capture CO2 from coal 
gasification plants are commercially demonstrated, as is the injection 
of CO2 into geologic formations for disposal. On the other 
hand, coal gasification to produce a significant amount of liquids for 
transportation fuel would not be compatible with the need to develop a 
low-CO2 emitting transportation sector. Finally, gasifying 
coal to produce synthetic pipeline gas or chemical products needs a 
careful assessment of the full life cycle emission implications and the 
emission reductions that are required from those sectors before 
decisions are made to invest in these systems.
    In the absence of a program that requires limits on CO2 
emissions IGCC systems with carbon capture and disposal will not be 
brought to market in time. We need to combine CO2 limits 
with financial incentives to start building these integrated plants 
now, because industry is already building and designing the power 
plants that we will rely on for the next 40-80 years. 
[GRAPHIC] [TIFF OMITTED] T7378.001


                                ENDNOTES
\1\David Hawkins, Testimony before the Senate Energy and Natural 
        Resources Committee, ``Coal Liquefaction and Gasification'', 
        April 24th, 2006. http://docs.nrdc.org/globalwarming/glo--
        06042401a.pdf; Antonia Herzog, Testimony before the Senate 
        Energy and Natural Resources Committee, ``Coal Gasification'', 
        May 1, 2006.
\2\American Council for an Energy-Efficient Economy (ACEEE), Fall 2004 
        Update on Natural Gas Markets, November 3, 2004. See also 
        Consumer Federation of America, ``Responding to Turmoil in 
        Natural Gas Markets: The Consumer Case for Aggressive Policies 
        to Balance Supply and Demand,'' December 2004, pp. 28, 11 
        (``[V]igorous efforts to improve efficiency'' should be the 
        first policy option pursued, because even small reductions in 
        natural gas consumption can have a significant downward impact 
        on prices.)
\3\EIA, Impacts of a 10-Percent Renewable Portfolio Standard, SR/OIAF/
        2002-03, February 2002. EIA, Analysis of a 10-Percent Renewable 
        Portfolio Standard, SR/OIAF/2003-01, May 2003. Union of 
        Concerned Scientists, Clean Energy Blueprint: A Smarter 
        National Energy Policy for Today and the Future, October 2001.
\4\U.S. Department of Energy, Lawrence Berkeley National Laboratory, 
        Easing the Natural Gas Crisis: Reducing Natural Gas Prices 
        Through Increased Deployment of Renewable Energy and Energy 
        Efficiency, January, 2005, p. 13.
\5\EIA, Impacts of a 10-Percent Renewable Portfolio Standard, SR/OIAF/
        2002-03, February 2002.
\6\Id. at Figure 3.
\7\UCS, Renewable Energy Can Help Alleviate Natural Gas Crisis, June 
        2003, at 2.
\8\UCS, Clean Energy Blueprint: A Smarter National Energy Policy for 
        Today and the Future, October 2001.
\9\Peabody's ``Eight-Point Plan'' calls for a total of 1.3 billion tons 
        of additional coal production by 2025, proposing that coal be 
        used to produce synthetic pipeline gas, additional coal-fired 
        electricity, hydrogen, and fuel for ethanol plants. The entire 
        program would more than double U.S. coal mining and 
        consumption.
\10\National Academy of Sciences, Understanding and Responding to 
        Climate Change: Highlights of National Academies Reports, p.16 
        (October 2005), http://dels.nas.edu/dels/rpt--briefs/climate-
        change-final.pdf.
\11\http://www.eia.doe.gov/cneaf/coal/page/acr/table26.html
\12\California Energy Commission, 2005. 2004 Net System Power 
        Calculation (April.) Table 3: Gross System Power. http://
        www.energy.ca.gov/2005publications/CEC-300-2005-004/CEC-300-
        2005-004.PDF
\13\Calculated well to wheel CO2 emissions for coal-based 
        ``Fischer-Tropsch'' are about 1.8 greater than producing and 
        consuming gasoline or diesel fuel from crude oil. If the coal-
        to-liquids plant makes electricity as well, the relative 
        emissions from the liquid fuels depends on the amount of 
        electricity produced and what is assumed about the emissions of 
        from an alternative source of electricity.
\14\Capturing 90 percent of the emissions from coal-to-liquid plants 
        reduces the emissions from the plant to levels close to those 
        from petroleum production and refining while emissions from the 
        vehicle are equivalent to those from a gasoline vehicle. With 
        such CO2 capture, well to wheels emissions from 
        coal-to-liquids fuels would be 8 percent higher than for 
        petroleum.
\15\The National Coal Council, ``Coal: America's Energy Future,'' March 
        22, 2006. This report actually assumes a less efficient coal to 
        synthetic gas conversion process of 50% leading to three times 
        as much CO2 per 1000 cubic feet of natural gas 
        consumed compared to conventional resources.
\16\The sulfur and nitrogen caps in EPA's ``Clean Air Interstate Rule'' 
        (``CAIR'') may cover emissions from coal-to-liquids plants 
        built in the eastern states covered by the rule but would not 
        apply to plants built in the western states. Neither the 
        national ``acid rain'' caps nor EPA's mercury rule would apply 
        to coal-to-liquids plants.
\17\Jennie Stephens, ``Coupling CO2 capture and Storage with 
        Coal Gasification: Defining `Sequestration-Ready' IGCC'', BCSIA 
        Discussion Paper 2005-09, Energy technology Innovation Project, 
        Kennedy School of Government, Harvard University, 2005.
\18\Id. p.3.
\19\``Securing America: Solving our Oil Dependence through 
        Innovation'', NRDC and IAGS report, February 2005. http://
        www.nrdc.org/air/transportation/oilsecurity/plan.pdf.
                                 ______
                                 
                               Appendix A
Mining, Processing and Transporting Coal
    The impacts of mining, processing, and transporting 1.1 billion 
tons of coal today on health, landscapes, and water are large. To 
understand the implications of continuing our current level of as well 
as expanding coal production, it is important to have a detailed 
understanding of the impacts from today's level of coal production. The 
summary that follows makes it clear that we must find more effective 
ways to reduce these impacts before we follow a path that would result 
in even larger amounts of coal production and transportation.
Health and Safety
    Coal mining is one of the U.S.'s most dangerous professions. The 
yearly fatality rate in the industry is 0.23 per thousand workers, 
making the industry about five times as hazardous as the average 
private workplace. 1 The industry had 27 fatalities in 2002, 
an all-time low, 2 and there were 55 deaths in 2004 and 57 
deaths in 2005. 3 The first month of 2006 was particularly 
deadly, however, with 18 fatalities through February 1st. Sixteen of 
these deaths occurred in West Virginia mines, leading the Governor to 
call for an unprecedented suspension of production while safety checks 
were conducted. Coal miners also suffer from many non-fatal injuries 
and diseases, most notably black lung disease (also known as 
pneumoconiosis) caused by inhaling coal dust. Although the 1969 Coal 
Mine Health and Safety Act seeks to eliminate black lung disease, the 
United Mine Workers estimate that 1500 former miners die of black lung 
each year. 4
Terrestrial Habitats
    Coal mining--and particularly surface or strip mining--poses one of 
the most significant threats to terrestrial habitats in the United 
States. The Appalachian region 5, for example, which 
produces over 35% of our nation's coal 6, is one of the most 
biologically diverse forested regions in the country. But during 
surface mining activities, trees are clearcut and habitat is 
fragmented, destroying natural areas that were home to hundreds of 
unique species of plants and animals. Even where forests are left 
standing, fragmentation is of significant concern because a decrease in 
patch size is correlated with a decrease in biodiversity as the ratio 
of interior habitat to edge habitat decreases. This is of particular 
concern to certain bird species that require large tracts of interior 
forest habitat, such as the black-and-white warbler and black-throated 
blue warbler.
    After mining is complete, these once-forested regions in the 
Southeast are typically reclaimed as grasslands, although grasslands 
are not a naturally occurring habitat type in this region. Grasslands 
that replace the original ecosystems in areas that were surface mined 
are generally categorized by less-developed soil structure 7 
and lower species diversity 8 compared to natural forests in 
the region. Reclaimed grasslands are generally characterized by a high 
degree of soil compaction that tends to limit the ability of native 
tree and plant species to take root. Reclamation practices limit the 
overall ecological health of sites, and it has been estimated that the 
natural return of forests to reclaimed sites may take hundreds of 
years. 9 According to the USEPA, the loss of vegetation and 
alteration of topography associated with surface mining can lead to 
increased soil erosion and may lead to an increased probability of 
flooding after rainstorms. 10
    The destruction of forested habitat not only degrades the quality 
of the natural environment, it also destroys the aesthetic values of 
the Appalachian region that make it such a popular tourist destination. 
An estimated one million acres of West Virginia Mountains were subject 
to strip mining and mountaintop removal mining between 1939 and 2005. 
11 Many of these mines have yet to be reclaimed so that 
where there were once forested mountains, there now stand bare mounds 
of sand and gravel.
    The terrestrial impacts of coal mining in the Appalachian region 
are considerable, but for sheer size they cannot compare to the impacts 
in the western United States. 12 As of September 30, 2004, 
470,000 acres were under federal coal leases or other authorizations to 
mine. 13 Unlike the East, much of the West--including much 
of the region's principal coal areas ``is arid and predominantly 
unforested. In the West, as in the East, surface mining activities 
cause severe environmental damage as huge machines strip, rip apart and 
scrape aside vegetation, soils, wildlife habitat and drastically 
reshape existing land forms and the affected area's ecology to reach 
the subsurface coal. Strip mining results in industrialization of once 
quiet open space along with displacement of wildlife, increased soil 
erosion, loss of recreational opportunities, degradation of wilderness 
values, and destruction of scenic beauty. 14 Reclamation can 
be problematic both because of climate and soil quality. As in the 
East, reclamation of surface mined areas does not necessarily restore 
pre-mining wildlife habitat and may require scarce water resources be 
used for irrigation. 15 Forty-six western national parks are 
located within ten miles of an identified coal basin, and these parks 
could be significantly affected by future surface mining in the region. 
16
Water Pollution
    Coal production causes negative physical and chemical changes to 
nearby waters. In all surface mining, the overburden (earth layers 
above the coal seams) is removed and deposited on the surface as waste 
rock. The most significant physical effect on water occurs from valley 
fills, the waste rock associated with mountaintop removal (MTR) mining. 
Since MTR mining started in the United States in the early 70's, 
studies estimate that over 700 miles of streams have been buried from 
valley fills, and 1200 additional miles have been directly impacted 
from valley fills through sedimentation or chemistry alteration. 
17 Together, the waterways harmed by valley fills are about 
80 percent as long as the Mississippi River. Valley fills bury the 
headwaters of streams, which in the southeastern U.S. support diverse 
and unique habitats, and regulate nutrients, water quality, and flow 
quantity. The elimination of headwaters therefore has long-reaching 
impacts many miles downstream. 18
    Coal mining can also lead to increased sedimentation, which affects 
both water chemistry and stream flow, and negatively impacts aquatic 
habitat. Valley fills in the eastern U.S., as well as waste rock from 
strip mines in the west add sediment to streams, as does the 
construction and use of roads in the mining complex. A final physical 
impact of mining on water is to the hydrology of aquifers. MTR and 
valley fills remove upper drainage basins, and often connect two 
previously separate aquifers, altering the surrounding groundwater 
recharge scheme. 19
    Acid mine drainage (AMD) is the most significant form of chemical 
pollution produced from coal mining operations. In both underground and 
surface mining, sulfur-bearing minerals common in coal mining areas are 
brought up to the surface in waste rock. When these minerals come in 
contact with precipitation and groundwater, an acidic leachate is 
formed. This leachate picks up heavy metals and carries these toxins 
into streams or groundwater. Waters affected by AMD often exhibit 
increased levels of sulfate, total dissolved solids, calcium, selenium, 
magnesium, manganese, conductivity, acidity, sodium, nitrate, and 
nitrite. This drastically changes stream and groundwater chemistry. 
20 The degraded water becomes less habitable, non potable, 
and unfit for recreational purposes. The acidity and metals can also 
corrode structures such as culverts and bridges. 21 In the 
eastern U.S., estimates of the damage from AMD range from four to 
eleven thousand miles of streams. 22 In the West, estimates 
are between five and ten thousand miles of streams polluted. The 
effects of AMD can be diminished through addition of alkaline 
substances to counteract the acid, but recent studies have found that 
the addition of alkaline material can increase the mobilization of both 
selenium and arsenic. 23 AMD is costly to mitigate, 
requiring over $40 million annually in Kentucky, Tennessee, Virginia, 
and West Virginia alone. 24
Air Pollution
    There are two main sources of air pollution during the coal 
production process. The first is methane emissions from the mines. 
Methane is a powerful heat-trapping gas and is the second most 
important contributor to global warming after carbon dioxide. Methane 
emissions from coal mines make up between 10 and 15% of anthropogenic 
methane emissions in the U.S. According to the most recent official 
inventory of U.S. global warming emissions, coal mining results in the 
release of 3 million tons of methane per year, which is equivalent to 
68 million tons of carbon dioxide. 25
    The second significant form of air pollution from coal mining is 
particulate matter (PM) emissions. While methane emissions are largely 
due to eastern underground mines, PM emissions are particularly serious 
at western surface mines. The arid, open and frequently windy region 
allows for the creation and transport of significant amounts of 
particulate matter in connection with mining operations. Fugitive dust 
emissions occur during nearly every phase of coal strip mining in the 
west. The most significant sources of these emissions are removal of 
the overburden through blasting and use of draglines, truck haulage of 
the overburden and mined coal, road grading, and wind erosion of 
reclaimed areas. PM emissions from diesel trucks and equipment used in 
mining are also significant. PM can cause serious respiratory damage as 
well as premature death. 26 In 2002, one of Wyoming's coal 
producing counties, Campbell County, exceeded its ambient air quality 
threshold several times, almost earning non-attainment status. 
27 Coal dust problems in the West are likely to get worse if 
the Administration finalizes its January 2006 proposal to exempt mining 
(and other activities) from controls aimed at meeting the coarse PM 
standard. 28
Coal Mine Wastes
    Coal mining leaves a legacy of wastes long after mining operations 
cease. One significant waste is the sludge that is produced from 
washing coal. There are currently over 700 sludge impoundments located 
throughout mining regions, and this number continues to grow. These 
impoundment ponds pose a potential threat to the environment and human 
life. If an impoundment fails, the result can be disastrous. In 1972 an 
impoundment break in West Virginia released a flood of coal sludge that 
killed 125 people. In the year 2000 an impoundment break in Kentucky 
involving more than 300 million gallons of slurry (30 times the size of 
the Exxon Valdez spill) killed all aquatic life in a 20 mile diameter, 
destroyed homes, and contaminated much of the drinking water in the 
eastern part of the state. 29
    Another waste from coal mining is the solid waste rock left behind 
from tunneling or blasting. This can result in a number of 
environmental impacts previously discussed, including acid mine 
drainage (AMD). A common problem with coal mine legacies is the fact 
that if a mine is abandoned or a mining company goes out of business, 
the former owner is under no legal obligation to cleanup and monitor 
the environmental wastes, leaving the responsibility in the hands of 
the state. 30
Effects on Communities
    Coal mining can also have serious impacts on nearby communities. In 
addition to noise and dust, residents have reported that dynamite 
blasts can crack the foundations of homes 31, and many cases 
of subsidence due to the collapse of underground mines have been 
documented. Subsidence can cause serious damage to houses, roads, 
bridges, and any other structure in the area. Blasting can also cause 
damage to wells, and changes in the topography and structure of 
aquifers can cause these wells to run dry.
Transportation of Coal
    Transporting coal from where it is mined to where it will be burned 
also produces significant quantities of air pollution and other 
environmental harms. Diesel-burning trucks, trains, and barges that 
transport coal release NOx, SOx, PM, VOCs 
(Volatile Organic Chemicals), CO, and CO2 into the earth's 
atmosphere. Trucks and trains (barge pollution data are unavailable) 
transporting coal release over 600,000 tons of NOx, and over 
50,000 tons of PM10 into the air annually. 32, 33 
In addition to health risks, black carbon from diesel combustion is 
another contributor to global warming. 34 Land disturbance 
from trucks entering and leaving the mine complex and coal dust along 
the transport route also release particles into the air. 35 
For example, in Sylvester, West Virginia, a Massey Energy coal 
processing plant and the trucks associated with it spread so much dust 
around the town that ``Sylvester's residents had to clean their windows 
and porches and cars every day, and keep the windows shut.'' 
36 Even after a lawsuit and a court victory, residents--who 
now call themselves ``Dustbusters''--still ``wipe down their windows 
and porches and cars.'' 37
    Almost 60 percent of coal in the U.S. is transported at least in 
part by train and coal transportation accounts for 44% of rail freight 
ton-miles. 38 Some coal trains reach more than two miles in 
length, causing railroad-crossing collisions and pedestrian accidents 
(there are approximately 3000 such collisions and 900 pedestrian 
accidents every year), and interruption in traffic flow (including 
emergency responders such as police, ambulance services, and fire 
departments). Local communities also have concerns about coal trucks, 
both because of their size and the dust they can leave behind. 
According to one report, in a Kentucky town, coal trucks weighing 120 
tons with their loads were used, and ``the Department of Transportation 
signs stating a thirty-ton carrying capacity of each bridge had 
disappeared.'' 39 Although the coal company there has now 
adopted a different route for its trucks, community representatives in 
Appalachia believe that coal trucks should be limited to 40 tons. 
40
    Coal is also sometimes transported in a coal slurry pipeline, such 
as the one used at the Black Mesa Mine in Arizona. In this process the 
coal is ground up and mixed with water in a roughly 50:50 ratio. The 
resulting slurry is transported to a power station through a pipeline. 
This requires large amounts of fresh groundwater. To transport coal 
from the Black Mesa Mine in Arizona to the Mohave Generating Station in 
Nevada, Peabody Coal pumped over one billion gallons of water from an 
aquifer near the mine each year. This water came from the same aquifer 
used for drinking water and irrigation by members of the Navajo and 
Hopi Nations in the area. Water used for coal transport has led to a 
major depletion of the aquifer, with more than a 100 foot drop in water 
level in some wells. In the West, coal transport through a slurry 
pipeline places additional stress on an already stressed water supply. 
Maintenance of the pipe requires washing, which uses still more fresh 
water. Not only does slurry-pipeline transport result in a loss of 
freshwater, it can also lead to water pollution when the pipe fails and 
coal slurry is discharged into ground or surface water. 41 
The Peabody pipe failed 12 times between 1994 and 1999. The Black Mesa 
mine closed as of January 2006. Its sole customer, the Mohave 
Generating Station, was shut down because its emissions exceeded 
current air pollution standards.
                                ENDNOTES
}1 Congressional Research Service, U.S. Coal: A Primer on 
        the Major Issues, at 30 (Mar. 25, 2003).
}2 Id.
}3 Melissa Drosjack, FoxNews.com, Congress to Examine Mine 
        Safety (Jan. 20, 2006), online at ``http://www.foxnews.com/
        story/0,2933,182276,00.html'' (visited Feb. 1, 2006).
}4 http://www.umwa.org/blacklung/blacklung.shtml
}5 Alabama, Georgia, Eastern Kentucky, Maryland, North 
        Carolina, Ohio, Pennsylvania, Tennessee, Virginia, and West 
        Virginia.
}6 Energy Information Administration. Annual Coal Report, 
        2004.
}7 Sencindiver, et al. ``Soil Health of Mountaintop Removal 
        Mines in Southern West Virginia''. 2001.
}8 Handel, Steven. Mountaintop Removal Mining/Valley Fill 
        Environmental Impact Statement Technical Study, Project Report 
        for Terrestrial Studies. October, 2002.
}9 Id.
10 EPA. Mountaintop Mining/Valley Fills in Appalachia: Draft 
        Programmatic Environmental Impact Statement. 2003
11 Julian Martin, West Virginia Highlands Conservancy, 
        Personal Communication, February 2, 2006.
12 Alaska, Arizona, Colorado, Montana, New Mexico, North 
        Dakota, Utah, Washington, and Wyoming.
13 Bureau of Land Management, Public Land Statistics 2004, 
        Table 3-18
14 See, e.g., U.S. Department of the Interior, Bureau of 
        Land Management, 1985 Federal Coal Management Program/Final 
        Environmental Impact Statement, pp. 210-211, 230-231, 241-242, 
        282 (water quality and quantity), 241, 251, 257
15 Bureau of Land Management. 3809 Surface Management 
        Regulations, Draft Environmental Impact Statement. 1999
16 National Park Service, DOI. ``Coal Development 
        Overview''. 2003.
17 EPA. Mountaintop Mining/Valley Fills in Appalachia: Draft 
        Programmatic Environmental Impact Statement.
18 Id.
19 Keating, Martha. ``Cradle to Grave: The Environmental 
        Impacts from Coal.'' Clean Air Task Force, Boston. June, 2001.
20 EPA Office of Solid Waste: Acid Mine Drainage Prediction 
        Technical Document. December, 1994.
21 EPA. Mountaintop Mining/Valley Fills in Appalachia: Draft 
        Programmatic Environmental Impact Statement. 2003
22 EPA. Mid-Atlantic Integrated Assessment: Coal Mining. 
        http://www.epa.gov/maia/html/coal-mining.html
23 EPA. Mountaintop Mining/Valley Fills in Appalachia: Final 
        Programmatic Environmental Impact Statement. 2005
24 Id.
25 DOE/EIA, 2005. Emissions of Greenhouse Gases in the 
        United States 2004. (December).
26 EPA. Particle Pollution and Your Health. 2003
27 Casper [WY] Star Tribune, January 24, 2005.
28 National Ambient Air Quality Standards for Particulate 
        Matter, Proposed Rule, 71 Fed. Reg. 2620 (January 17, 2006); 
        Revisions to Ambient Air Monitoring Regulations, Proposed Rule, 
        71 Fed. Reg. 2710 (January 17, 2006).
29 Frazier, Ian. ``Coal Country.'' On Earth. NRDC. Spring, 
        2003.
30 Reece, Erik. ``Death of a Mountain.'' Harper's Magazine. 
        April, 2005.
31 Id.
32 DOT Federal Highway Administration. Assessing the Effects 
        of Freight Movement on Air Quality, Final Report. April, 2005
33 Energy Information Administration: Coal Transportation 
        Statistics.
34 Hill, Bruce. ``An Analysis of Diesel Air Pollution and 
        Public Health in America.'' Clean Air Task Force, Boston. 
        February, 2005.
35 EPA. Mountaintop Mining/Valley Fills in Appalachia: Draft 
        Programmatic Environmental Impact Statement. 2003
36 Michael Schnayerson, ``The Rape of Appalachia,'' Vanity 
        Fair, 157 (May 2006).
37 Id.
38 http://nationalatlas.gov/articles/transportation/a--
        freightrr.html
39 Erik Reece, Lost Mountain: A Year in the Vanishing 
        Wilderness 112 (2006).
40 Personal communication from Hillary Hosta and Julia 
        Bonds, Coal River Mountain Watch (Apr. 7, 2006).
41 NRDC. Drawdown: Groundwater Mining on Black Mesa.
                                 ______
                                 
                               Appendix B
Reducing Oil Dependence--Securing America Program
    The Securing America program 1 is made up of these 
sensible steps that will cut oil dependence, cut global warming 
emissions, and reduce other harmful impacts of today's energy 
production and consumption patterns:
    Accelerate oil savings in passenger vehicles by:
      establishing tax credits for manufacturers to retool 
existing factories so they can build fuel-efficient vehicles and 
engineer advanced technologies, and
      establishing tax credits for consumers to purchase the 
next generation of fuel-efficient vehicles; and raising federal fuel 
economy standards for cars and light trucks in regular steps.
    Accelerate oil savings in motor vehicles through the following:
      requiring replacement tires and motor oil to be at least 
as fuel efficient as original equipment tires and motor oil;
      requiring efficiency improvements in heavy-duty trucks; 
and
      supporting smart growth and better transportation 
choices.
    Accelerate oil savings in industrial, aviation, and residential 
building sectors through the following:
      expanding industrial efficiency programs to focus on oil 
use reduction and adopting standards for petroleum heating;
      replacing chemical feedstocks with bioproducts through 
research and development and government procurement of bioproducts;
      upgrading air traffic management systems so aircraft 
follow the most-efficient routes; and
      promoting residential energy savings with a focus on oil-
heat.
    Encourage growth of the biofuels industry through the following:
      requiring all new cars and trucks to be capable of 
operating on biofuels or other non-petroleum fuels by 2015; and
      allocating $2 billion in federal funding over the next 10 
years to help the cellulosic biofuels industry expand production 
capacity to 1 billion gallons per year and become self-sufficient by 
2015.
[GRAPHIC] [TIFF OMITTED] T7378.002


1 ``Securing America: Solving our Oil Dependence through 
        Innovation'', NRDC and IAGS report, February 2005. http://
        www.nrdc.org/air/transportation/oilsecurity/plan.pdf.
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Mr. Hawkins. We 
appreciate your testimony. Thank you for being here and taking 
time out of your day to help us better understand this issue.
    We turn now to Mr. Fredrick Palmer, Peabody Energy 
Corporation. Mr. Palmer, welcome. The floor is yours.

    STATEMENT OF FREDRICK D. PALMER, SENIOR VICE PRESIDENT, 
              GOVERNMENT RELATIONS, PEABODY ENERGY

    Mr. Palmer. Thank you very much.
    Mr. Gibbons. Mr. Palmer, would you begin again and turn 
your mike on? Thank you.
    Mr. Palmer. Thank you, Mr. Chairman. It is an honor to be 
here. My name is Fred Palmer. I am Senior Vice President, 
Government Relations, for Peabody.
    I also chair the Coal Policy Committee of the National Coal 
Council and served as chair of the Technical Work Group for the 
recent study, Coal: America's Energy Future. Greg Boyce, 
Peabody's CEO, served as chair of the study.
    We are proud of the work of the National Coal Council. This 
comprehensive report involves 54 members meeting on three 
separate drafting occasions before finally adopting the report 
and presenting it to Secretary Bodman on March 22.
    Many different council members prepared separate parts of 
the report. All of us shared a common vision: America's 
abundant coal resources can and must be more fully utilized to 
meet our growing energy needs to improve the quality of life 
for all Americans and to enhance our national security.
    We are here today to focus on the alternative use of coal 
to create alternative energy resources. In my prepared 
testimony I detail the findings of the National Coal Council, 
which examines the many different energy applications our coal 
resources can be devoted to.
    Coal to liquids, coal to natural gas, electricity 
generation, ethanol, hydrogen, enhanced oil recovery and 
economic growth attending a more than doubling of U.S. coal 
production by 2025 are all discussed in depth in the report, 
and I would respectfully request that the Members read this 
report because I do think it is important.
    Because of recent events, however, I would like to spend my 
brief period focusing on one aspect of our energy crisis that 
needs urgent attention. Iran sits astride the world's most 
important oil reserves and the largest single reserve of 
natural gas. It is capable of closing the Strait of Hormuz or 
destroying Saudi oil export facilities on a moment's notice.
    Many in our country believe a sound energy policy should be 
based on liquefying Middle East natural gas to supply America's 
energy needs. I believe such a policy is misguided. Importing 
LNG from the Middle East is an extension of our current 
reliance on Middle Eastern oil with all of the attendant 
negatives of that reliance.
    Military conflict, adverse balance of payment impacts and 
environmental harm are but a few of the negatives associated 
with our reliance on Middle Eastern oil that would be magnified 
if we looked to Middle Eastern natural gas for a substantial 
portion of our future energy needs.
    Iran threatens the eradication of Israel. Iran threatens 
terrorist acts against the United States. Iran has developed a 
torpedo capable of reaching 200 miles an hour. Iran has tested 
missiles capable of reaching Eastern Europe.
    Iran is clearly dedicated to developing nuclear weapons 
with no other purpose in mind that holding the world hostage to 
its own distorted notions of how society should be formed and 
governed. Energy is its weapon in this effort to extort changes 
in policies by the industrialized west. Middle East oil and 
natural gas are a part of that weaponry.
    The Department of Defense recognizes our peril. DOD has 
created the Office of the Secretary of Defense Initiative 
designed to catalyze a commercial energy industry to produce 
clean fuel for the military from secure domestic oil shale and 
coal. DOD believes the U.S. to be the new Middle East of energy 
with the equivalent of 1.9 trillion barrels of oil reserves in 
our coal and oil shale deposits.
    Congress has the opportunity right now to put in place a 
legislative framework that will trigger creation of the energy 
manufacturing industry envisioned by the Defense Department by 
taking three simple steps:
    First, give DOD authority independent of the appropriations 
process to enter into long-term--20 years--offtake agreements 
from alternative energy producers with guaranteed floor prices 
and an adjustable mechanism giving a discount to future market 
prices. Approximately half of the DOD's 300,000 barrels per day 
appetite for fuel would be appropriate or 150,000 barrels per 
day of several projects scattered around the country.
    Two, extend the 50 cents per gallon tax credit for coal 
derived fuels found in the Transportation Act until 2020.
    Three, allow 100 percent depreciation for each dollar of 
investment made on coal-to-liquid refineries placed in service 
prior to 2020.
    With current oil prices, coal-to-liquid facilities are 
clearly economical. The barriers are the large capital 
investment required, regulatory delay in completing projects 
and a risk of future decline in crude oil prices.
    By lowering the risk profile of capital invested and 
providing a secure market for liquids produced, Congress will 
enhance national security by jump-starting a robust coal-to-
liquids industry and leaving the world a better place for our 
children and their children.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Palmer follows:]

        Statement of Fredrick D. Palmer, Senior Vice President--
                  Government Relations, Peabody Energy

    Thank you, Mr. Chairman, Distinguished Members and guests. I'm Fred 
Palmer, Chair of the Technical Work Group for the National Coal 
Council. It is a pleasure to be here today to share the National Coal 
Council's perspective. We believe the United States can use clean coal 
and clean coal technologies to provide a more secure and affordable 
energy future for the American people. Coal represents the key to U.S. 
energy security--abundant energy--lower consumer prices...and more 
jobs.
    As you know, last year the Secretary of Energy asked the National 
Coal Council to study the potential of coal BTU Conversion technologies 
to meet future U.S. energy needs.
    The report process was comprehensive, featuring input from 54 
members over nine months.
    Out of that effort grew an eight-point plan that represents a 
dramatic step forward in America's search for energy independence. The 
Report was presented to the Secretary in March 2006. The Report, 
``Coal: America's Energy Future,'' can be found on 
www.nationalcoalcouncil.org.
    The Report sets forth an ambitious plan to add 1.3 billion tons per 
year of U.S. coal production by 2025 to meet the Nation's growing 
energy needs while improving the environment through deployment of 
cutting edge clean coal technology. This increased production, which is 
more than double today's levels, will be deployed to produce coal-to-
liquids, coal-to-natural-gas, coal for increased electricity 
generation, coal-to-hydrogen, coal for ethanol production, and enhanced 
oil and gas recovery utilizing CO2 emissions from coal 
combustion.
    The needed investment identified by the Report will be large, but 
the payback will be even larger. Over $500 billion in capital 
expenditures will be required over the 20-year period. This, in turn, 
will require cooperation by the federal government in the form of a 
capital friendly legislative framework to unleash the genius of 
American industry in the creation of an energy manufacturing industry. 
According to the Report, the payback to the country will exceed $3 
trillion in cumulative GDP gains and the creation of an additional 1.4 
million new jobs per year.
    When the Report was issued, eyebrows were raised over the scope of 
the Council's vision. Some in the environmental community were critical 
over the Council's call to establish a new energy manufacturing 
industry in the United States, notwithstanding the Council's in-depth 
discussion and examination of available clean coal technologies and 
notwithstanding the energy supply crisis confronting our country.
    For too long, the United States has been losing manufacturing jobs 
overseas. At the same time, our increased reliance on foreign oil and 
now liquefied natural gas has given tremendous leverage to countries 
that are overtly hostile to us and to our way of life. The National 
Coal Council firmly believes that we can address both problems by 
reindustrializing the U.S. economy while at the same time securing our 
own destiny by utilizing our own energy resources.
    Events in the last four months, and some within the last month, 
underscore the timeliness of the Report and the clarity of the 
Council's vision. Here are a few items that have been in the headlines 
on an almost daily basis:
      IRAN--Oil prices increased by $2 the day Iran tested its 
new weapons in the Strait of Hormuz. Reports in the western media 
indicated some Iranian officials threatened to close the Strait to 
tanker traffic.
      NORWAY--projected a 5% decline in oil production in 2006
      RUSSIA--Pravda reported the growth rate of Russian oil 
production would fall below 2% in 2006, versus 10% in 2004. In April, 
the IEA confirmed Russian exports would be lower than previously 
expected.
      NIGERIA--In April, civil unrest kept over 450,000 barrels 
per day offline.
      BRITAIN--is now importing 10% of its natural gas; by 2010 
it will import 40% and by 2020 90%
      MEXICO--Canterell field accounts for 60% of oil 
production. Output will decline by 28% by 2008.
      VENEZUELA--seized control of 32 private oil fields on 
January 1, 2006, and in March threatened to divert supplies away from 
U.S.
      FRANCE--In discussing IEA projection of 121 million 
barrels of oil per day in 2030, the Head of Exploration at TOTAL 
stated: ``Numbers like 120...will never be met, never.''
      AUSTRALIA--crude oil production projected to be 30% lower 
in 2006 than in 2000; Australia may soon be importing half of its oil.
      UNITED STATES--LNG imports in the first quarter were down 
more than 30%. Europe and Asia are bidding cargos away from U.S.--in 
some cases, loaded tankers have departed the Gulf of Mexico to go to 
Europe.
    The situation we now confront in the world does not mean we should 
withdraw from the world economy and look only to ``Fortress America.'' 
It does mean that we need a more robust development of all of America's 
energy resources to strengthen our ability to both compete in the 
global economy and to cope with the overt military threats to American 
interests abroad and natural resources that the world's economy depends 
upon. In this context, coal moves front and center because it alone can 
provide the fuel we need in the volumes required of the quality 
required at an economical price, all with environmental excellence to 
secure America's future and, therefore, the future of the world 
community.
    The Department of Defense (DoD) has recognized the danger of our 
growing dependence on foreign oil. The DoD is aggressively pursuing a 
strategy to catalyze commercial production of fuels from alternative 
energy resources by 2010. Their goal is to eliminate dependence on 
foreign sources and mega-refineries for strategic fuel supplies. 
Another goal is to develop a Battlefield Use Fuel of the Future (BUFF) 
by evaluating, demonstrating and certifying turbine fuels from 
alternative energy resources for use in tactical vehicles, aircraft and 
ships.
    DoD needs about 300,000 barrels a day, with jet fuel a major 
component. Coal-to-liquids (CTL) can play a crucial role in this area. 
Fuel produced through the Fischer-Tropsch process yields more energy 
per pound than traditional fuels, has virtually no sulfur and is less 
subject to freezing. Further, CTL products even have a significant 
advantage over bio-fuels such as ethanol because they provide more Btus 
per unit.
    Your hearings on the role coal, especially federal coal, can play 
in providing alternative fuels for transportation, industry and 
residential use are important to our nation. About 60 percent of the 
area underlain with coal-bearing rocks in the coterminous United States 
is under federal surface. Federal lands account for over 40 percent of 
all coal production. Thus, federal coal is already making an important 
contribution to our energy needs and has the potential to do much more.
NCC FINDINGS INDICATE COAL CAN PROVIDE IMPORTANT LIQUID FUELS
    The findings from the NCC Report demonstrate that coal can help 
alleviate liquid fuel problems along three distinct lines:
    1.  Coal can be liquefied. Our analysis indicates that we can 
increase product supply by 2.6 million barrels per day by using 475 
million tons of coal per year. This additional clean fuel would be 
fungible with petroleum products. Coal-to-liquids (CTL) is a proven 
technology. The Department of Energy has stated:
        ``The current coal-to-liquids technology is well defined in 
terms of cost and performance. It can be used domestically in the 
United States to limit our exposure to oil price increases.''
        In his Senate testimony on April 24, Clarence Miller, from the 
DOE's Office of Fossil Energy, gave a thorough evaluation of how we can 
utilize CTL technologies to our country's advantage. Coal-to-liquids 
plants can be built near coal fields if the infrastructure for liquid 
fuel distribution is available or the coal can be shipped to plants 
built near fuel markets.
    2.  Coal can be the heat source for ethanol. The United States is 
committed to using ethanol to displace a significant amount of foreign 
oil. With the nation under Congressional mandate to increase ethanol 
production from the current 4.4 billion gallons per year to 7.5 
billion, it is difficult to imagine how this 70 percent increase can be 
accomplished without the expanded use of coal. While natural gas has 
been the typical heat source in ethanol production, prices have 
increased 150 percent in just the last four years. Coal is much less 
expensive and has far less price volatility. In 2005, for example, the 
cost of producing electricity from natural gas was $8.33 per million 
Btu. The cost for coal was only $1.54 per million Btu. No wonder the 
ethanol industry is already embracing coal for new plants in states 
such as Iowa, Nebraska, Missouri, North Dakota and Illinois.
        We found that coal use could increase by 40 million tons per 
year to support ethanol production of one million barrels per day.
    3.  Coal can provide for expanded domestic Enhanced Oil Recovery 
(EOR) and coalbed methane recovery (ECBM) using captured 
CO2. The U.K. and Europe have shown that Kyoto-type carbon 
caps don't work and punish society and economies in the process. 
Technology is the proper path to address climate concerns, and 
technologies can enable carbon capture and storage. Transferring carbon 
dioxide back into the ground can allow additional oil and coalbed 
methane production. We believe that enhanced oil recovery could lead to 
an added 2-3 million barrels per day of oil production from existing 
oil producing basins.
    In essence, then, the NCC Report found that clean coal can increase 
our liquid fuel supply by over 6 million barrels per day--25 percent of 
EIA projected demand in 2020. These processes would require 515 million 
tons of coal per year--well within our production capacity.
    The NCC Report also found that coal could be:
    (a)  gasified to produce up to 4 Tcf of natural gas equivalents, 
thereby meeting 15 percent of our future requirements and virtually 
eliminating the need to rely on expensive imported liquefied natural 
gas (LNG).
    (b)  used to fuel over 100 Gigawatts (GW) of additional coal-based 
electricity generation. Indeed, based on data from the National Energy 
Technology Laboratory (NETL), over 90 GW of new coal-based generation 
are currently being planned.
    (c)  used to produce hydrogen. FutureGen is the world's largest 
global private/public initiative. Coal can satisfy at least 10 percent 
of our transportation needs at Freedom Car efficiencies.
    Specific recommendations to implement the findings are extensively 
discussed in the NCC Report. A key objective of these recommendations 
is to assure that private capital can be attracted to make the 
necessary investments in our energy future.
    Further, in addition to increasing domestic energy supply, the 
steps proposed in the NCC Report would have social and economic 
benefits for all Americans. An independent analysis conducted at Penn 
State University found that increasing annual coal production by 1.3 
billion tons for BTU Conversion would mean:
      energy prices would be reduced by one-third from the 
business-as-usual case
      the annual GDP would be more than $600 billion higher in 
2025
      the net present value of the benefit is $3 trillion, 
increasing to $4 trillion with enhanced oil recovery, and
      employment would be increased by 1.4 million per year by 
2025.
    By 2025, new capital expenditures of only $515 billion (present 
value of $350 billion) would be required--a tremendous investment in 
America's future.
    Of course, what is the value of added national security and freedom 
from the yoke of energy dependence? These economic gains are greatly 
enhanced by the strengthening of U.S. energy security.
    I would now like to take a few minutes to delineate why we should 
proceed immediately to pursue the BTU Conversion technologies discussed 
in the NCC Report:
    1.  Energy demand is increasing. The EIA has projected that by 2030 
our energy consumption will grow from 100 quadrillion Btu to 127 
quads--an increase more than the annual energy consumption of France 
and Germany combined.
        And these increases in demand are occurring around the world. 
China's energy needs, for instance, are stunning. Their population of 
1.3 billion will reach over 1.5 billion by 2020. China plans to 
increase annual coal production from 1.7 billion tons to 3.2 billion by 
2020. Electricity generating capacity will double to 1,000 GW. By 2010, 
China could have 50 coal gasification plants, and they have announced a 
$20 billion commitment to build coal-to-liquids facilities. China 
regards BTU Conversion as a strategic imperative.
        India is close behind. Their population of 1.1 billion will 
reach 1.3 billion by 2025--and some day India will be the most 
populated nation. India's rate of growth in oil demand is one of the 
highest in the world. Yet India has paltry oil reserves of less than 6 
barrels per person, compared with over 70 in the United States.
        It took the United States a century to move through booms in 
industrialization...urbanization...transportation...and information. 
China and India are experiencing these sea changes at the same time.
    2.  Dependence on imports is growing. The EIA projects that by 2030 
we will be importing 62 percent of our oil and 21 percent of our 
natural gas.
        This imported energy will come at a staggering cost--at today's 
prices the cost of imported energy would reach $2.5 trillion over the 
next decade--$25,000 for every household in the United States.
    3.  The problem is getting worse. Domestic oil production declined 
11 percent just between 2001 and 2005. EIA projections indicate demand 
for petroleum will increase by almost 7 million barrels per day by 
2030. Yet domestic crude production will drop by 18 percent, requiring 
ever more imports and consigning the next generation to even greater 
dependence on unstable and hostile nations. And oil is not our only 
problem along these lines. As we look to the future, we should note 
that 42 percent of the world's natural gas is in Iran and Russia.
    4.  Coal is the only domestic fuel with the flexibility and reserve 
base to balance this increasingly lopsided energy equation. U.S. oil 
and natural gas production peaked in the 1970s, but we have enough coal 
to last well over 100 years even at elevated levels of consumption. 
America has 27 percent of global coal reserves, and coal is found in 
more than half of the states. Some people call the U.S. the Saudi 
Arabia of coal--but that doesn't really do us justice. America has more 
coal than any nation has any single energy resource. Just the State of 
Illinois has more coal resources than all the oil in Saudi Arabia, 
Iran, Iraq and Kuwait combined.
    5.  Coal is the epitome of a secure energy source. We know where 
the coal is. We know it's within our shores. We know that other 
countries won't nationalize it...halt its shipments to pursue nuclear 
ambitions...shut off its supplies due to price disputes...kidnap its 
workers...or use it as leverage to compromise our national security.
    6.  Coal is increasingly clean. Environmental progress in mining 
and coal combustion over the past 20 years has been spectacular. Coal 
power plants, for example, produce three times as much electricity than 
in 1970, but emissions have declined by one-third and are heading lower 
as clean coal technologies propel continuous improvement.
NCC RECOMMENDATIONS
    The National Coal Council found that the mining industry and 
transportation infrastructure can be expanded to accommodate growth in 
coal production from 1.1 billion tons per year today to 2.4 billion 
tons per year in 2025. As I have documented here today, this new coal 
supply can be converted to Btus across the energy spectrum.
    Our emerging energy needs are massive. And our response must be 
proportionate in magnitude to meet those needs.
    The National Coal Council's recommendations are tantamount to the 
creation of an entirely new energy manufacturing industry in the United 
States. The initial expenditures to jumpstart this new energy 
manufacturing industry will require a significant investment of 
capital. The risk associated with such an undertaking will be perceived 
as substantial given the historic volatility of oil prices and, more 
recently, the price of natural gas. The most significant contribution 
government can make to this endeavor is to lower the risk profile of 
investment. The National Coal Council recommends that capital funding 
policies be implemented to encourage the private sector to step forward 
on a massive scale. The specific fiscal, tax, financial, and regulatory 
recommendations presented here are all designed to encourage private 
sector commitments to seize this opportunity and secure America's 
energy future.
    Many of the approaches recommended build on existing law and recent 
federal enactments, including the American Jobs Creation Act of 2004 
(AJCAct2004); the Safe, Accountable, Flexible, Efficient Transportation 
Equity Act: A Legacy for Users (SAFETEA-LU 2005); the Energy Policy Act 
of 2005 (EPAct2005); and the President's Advanced Energy Initiative.
    In order to remove potential barriers to expanded coal production 
and use, the DOE, acting in coordination with other federal agencies 
and states, should:
    Accelerate research, development and demonstration of advanced 
technology by:
      urging Congress to appropriate full funding for all clean 
coal programs authorized, including FutureGen and the Clean Coal Power 
Initiative (CCPI), with the goal of developing at least 100 GW of clean 
coal power plants by 2025. Congress has recognized that a full 
portfolio of energy technologies is needed, including both coal 
gasification and combustion-based generation. The Department should 
take steps to assure U.S. energy policy achieves these goals.
    Improve the ability of the industry to attract private capital for 
new facilities by:
      providing for 100 percent expensing in the year of outlay 
for any coal-to-liquids (CTL) plant begun by 2020
      providing for 100 percent expensing in the year of outlay 
for coal-to-gas (CTG) plants operated to displace NG usage in existing 
combined cycle units, space heating and industrial application
      providing for a federal loan facility of $100 billion 
with the ability to provide loan guarantees for the initial commercial 
scale CTL and CTG plants (see EPAct2005, Title XVII)
    Provide market certainty for products by:
      guaranteeing federal government purchases of coal-to-
liquids products by either the Strategic Petroleum Reserve or the 
Department of Defense. These purchases should be based on long-term 
contracts with floor prices.
      extending the coal-to-liquids excise tax exemption to 
2020 (Safe, Accountable, Flexible, Efficient Transportation Equity Act: 
A Legacy for Users, SAFETEA-LU 2005 extension)
      extending the temporary expensing for equipment used in 
refining to 100 percent of any required additions to existing 
refineries needed to handle coal-to-liquids products (see EPAct2005, 
Sec. 1323)
      involving the Environmental Protection Agency (EPA) in 
the research on fuel performance characteristics to assure the broadest 
applicability in commercial use
      involving the Department of Defense in testing fuels to 
optimize plant and process design for the Air Force (jet fuel), Army 
(arctic diesel), and Navy (marine diesel) requirements
    Assure coal incentives for all alternative technologies by:
      providing for 100 percent expensing in the year of outlay 
for converting ethanol plants currently using natural gas to coal 
combined heat and power if the new plant is in service by 2010
    Minimize operating costs for new alternative fuel plants by:
      providing royalty (federal and state) relief for coal 
used to produce either liquids or gas
    Reduce permitting delays and regulatory uncertainty by:
      expediting permitting with a joint federal and state 
process, including Advanced Clean Coal power plants
      using, where appropriate, federal sites, including Base 
Realignment And Closure (BRAC) sites
      exempting initial coal-to-liquids and coal-to-gas plants 
from New Source Review (NSR) and National Ambient Air Quality Standards 
(NAAQS) offset requirements
      where it has not been done, implementing the 
recommendations proposed by the National Coal Council in the 2004 
report, ``Opportunities to Expedite the Construction of New Coal-Based 
Power Plants.''
    Assure that enhanced oil recovery in new basins using 
CO2 extracted from coal plants is an attractive investment 
by:
      increasing Section 43 investment tax credit to 50 percent
      creating an explicit exemption from the Alternative 
Minimum Tax (AMT) for new production from Enhanced Oil Recovery using 
CO2
      providing federal and state royalty and severance tax 
relief for oil produced until capital payout (see EPAct2005 Sec. 354)
    Provide incentives for upgrading the transportation infrastructure 
by:
      providing federal tax incentives to support taxpayers who 
invest in railroad infrastructure capacity
      urging Congress to appropriate funds for the upgrade of 
the inland waterway system, including barge access
    Ensure that all existing, identified U.S. economically recoverable 
reserves remain a part of the resource base by:
      seeking balance between precautionary protectionist 
policies and energy security
      supporting active enforcement of existing laws, including 
The Clean Water Act, the Endangered Species Act, the Surface Mining 
Control and Reclamation Act, and the Wilderness Act
      actively involving the DOE in addressing energy security 
in any policymaking that would ``sterilize'' significant coal reserves
      opposing overlapping and additional regulation that 
needlessly reduces access to the United States' most abundant energy 
resource--coal. Recent examples would be the last-minute inclusion of 
the Kaiparowits Plateau in the Grand Staircase-Escalante National 
Monument designation and the Forest Service's recently extended 
Roadless Forest Protection to July 16, 2007.
    Continuing to support the provisions of the Mine Safety and Health 
Act by:
      ensuring a progressive approach to the important issue of 
enhancing mine safety and working to provide enhanced funding for mine 
safety research by the National Institute for Occupational Safety and 
Health (NIOSH)
    Conduct a thorough and updated survey of U.S. coal reserves.
      The National Coal Council has conducted an in-depth 
analysis of coal mining and transportation infrastructure, but the 
resources of the federal government are required for a thorough 
analysis of our nation's vast reserves of coal.
SUMMARY
    This is an aggressive plan, and its benefit to Americans is 
enormous. Even as this town shows friction on a number of issues, there 
is growing bipartisan interest in turning U.S. coal into other energy 
forms, especially liquid fuels.
    Here's what Pennsylvania's Democratic Governor Ed Rendell said 
several months ago:
        ``Clean coal is a sound policy that unites public and private 
        interests. Instead of becoming more dependent on the Middle 
        East for our fuels, we can increase our dependency on Middle 
        America, and that makes sense to me. I call for an American 
        Energy Harvest.''
    And here's what U.S. Energy Secretary Bodman said just several 
weeks ago:
        ``While our traditional clean coal programs are focused on 
        producing electricity and, in the case of FutureGen, hydrogen, 
        I believe that our abundant coal reserves could do even more to 
        meet our nation's energy needs. One of the most exciting areas, 
        I believe, is the technology for turning coal into diesel and 
        jet fuel.''
    I noted earlier that China and India are called developing nations. 
America, too, is a growing nation.
    Last year we added almost 3 million people to the population, built 
over 1 million new homes, started over 3 million new small businesses 
and flew over 800 trillion air passenger miles. And America continued 
its above-trend economic growth.
    Coal is the only domestic energy resource that can meet the scale 
of such a massive increase in energy required to serve this growth--and 
the proper policies will insure we meet the needs of a dynamic nation.
    Clean coal can do all this--more jobs, higher incomes, new 
businesses, lower energy costs, a reduced trade deficit, enhanced 
national security and a major step toward less dependence on foreign 
suppliers. For the last decade, we have been shipping millions of 
manufacturing jobs overseas. We now spend over $250 billion per year on 
energy purchases from foreign suppliers. As liquefaction facilities, 
gasification units and ethanol plants are built across the nation, we 
can take control of our own energy destiny and follow a new clarion 
call to the future: ``Coal--Made in America.''
    That is why, while some people have called coal a bridge to the 
future, we say: Coal is the future. Thank you.
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Mr. Palmer. I appreciate 
your presence today. I appreciate your testimony. It certainly 
is very important for our committee to hear the remarks you 
have given. Thank you for taking the time.
    I know that we have just a few Members of our committee 
still here today, but I want to tell you that the testimony 
that all of you have given and the other panel that will follow 
you is very important to the understanding of Congress.
    We need to do something now. We need to know what those 
solutions may be. Each of you have offered solutions which are 
greatly appreciated, and from a congressional policy standpoint 
it is important.
    We are going to turn now to the question and answer period.
    First of all, I want to turn to Ms. Pierce. Thank you very 
much for your testimony today. Basically how long do you think 
it is going to take the USGS to complete its assessment of the 
coal resources in the United States? What is your projected 
timeline for that completion?
    Ms. Pierce. Well, we will do the first basin this year, the 
Gillette coal field, and then the whole Powder River Basin next 
year.
    I think these are the most difficult because there is a 
tremendous amount of data available from all the coal bed 
methane drilling there. I think the others will then speed up, 
so several years without trying to be evasive, but several 
years.
    Mr. Gibbons. Several being five?
    Ms. Pierce. As a good approximation, yes.
    Mr. Gibbons. OK.
    Ms. Pierce. So a basin per year.
    Mr. Gibbons. What part of the inventory would you guess or 
would you estimate that will be included or not included in the 
coal inventory that is currently off limits to some 
constriction, whether it is a wilderness area, whether it is a 
park area, whether it is a wilderness study area?
    Do you include those coal resources, first of all, I should 
ask? If you do, what part do you anticipate that will be of the 
total coal resource?
    Ms. Pierce. If it is a major coal-bearing area, even under 
those lands, we will include it; and then it will be off limits 
so it will be part of the restriction.
    If it is not a major coal-bearing area, and by that I mean 
a certain tonnage, a certain thickness, a certain depth, we 
will not include it, but we will include those off limit areas. 
That will be within the process that we assess.
    Mr. Gibbons. For example, in the Grand Staircase-Escalante 
area you will include the coal resources in that area?
    Ms. Pierce. Yes.
    Mr. Gibbons. OK. For the edification of the committee, why 
do you not tell us or discuss with us some of the coal research 
projects that are being conducted now? How long will the new 
technologies that you are looking at be available, or when will 
they be available I should say?
    Ms. Pierce. Sure. Our biggest effort right now is this coal 
assessment.
    As I mentioned, we have spent the last year revising our 
assessment methodology to change from our traditional approach 
of in-place resources, everything in the ground, to look at 
what the reserves are so that portion of the in-place resource 
that is those technically recoverable by today's technology and 
societal restrictions and then what portion of that is then 
economically recoverable with today's prices, market, 
transportation, et cetera. We have spent most of our efforts in 
the past year, year and a half, revising that and then working 
on the Gillette coal field as our first implementation.
    We do have coal quality projects, and traditionally we have 
looked at those, the coal quality projects, as coal, ash yield, 
sulfur content, the big ones. We have realized that what we 
want to help provide is something that might be predictive.
    If we could predict what is in the ground and what then 
might be in the air emissions, if we can look at what is in the 
ground and follow some of those elements of concern through the 
whole process--what is mined, what is cleaned and what is 
burned--are some of those of concern? Are some of those not? 
Will some of those elements be cleaned out? We just wanted to 
get a more robust scientific value to some of those studies.
    Mr. Gibbons. Mr. Copulos, thank you very much for being 
here as well.
    You know, we had a hearing just last Saturday on some of 
the renewable resources--wind, solar, geothermal, et cetera. In 
your mind, from your perspective and the work you have done, 
can wind or solar energy displace fossil fuels used for the 
transportation industry?
    Mr. Copulos. No. That is not even remotely possible. There 
are renewable energy technologies that have value, but, as I 
have said many times--I have an article in the current issue of 
American Legion magazine that goes into this--we can resolve 
our problem, but we can only do it if we use all of the 
resources, both conventional and renewable, at our disposal.
    You know, the thing is that time is running out. There is 
an article. As a matter of fact, Mr. Chairman, I might ask that 
we be allowed to put that in the record.
    Mr. Gibbons. Without objection.
    Mr. Copulos. OK.
    [NOTE: The article submitted for the record by Mr. Copulos 
has been retained in the Committee's official files.]
    Mr. Gibbons. Any documentation that you want to submit for 
the committee will be accepted without objection.
    Mr. Copulos. Thank you, sir. We are talking two of our 
people at the Foundation have in today's Washington Times 
talking about Venezuela and the problem there. When you look at 
where oil is around the world, at least 40 percent of our 
imports come from governments that are utterly unstable and 
directly hostile to our interest.
    A first order of business is to eliminate imports from 
those areas as a national security issue. You cannot do it with 
just renewables and certainly not with solar or wind. You can 
do it. Now, there are some excellent biofuels out there. There 
is some stunning research being done.
    There is also the issue of non-transportation fuels. Now, 
two-thirds of our fuel goes to transportation. That means a 
third does not. That third could be addressed. In the end what 
really we need more than anything else is political will.
    One other point I need to make. When we look at this issue 
we should not forget that you cannot just produce energy. You 
have to have hard rock minerals and other commodities to be 
able to build the equipment and provide the catalyst. We are in 
almost as serious a position regarding our mineral imports as 
we are concerning our energy imports.
    Mr. Gibbons. Speaking of time running out, my time has run 
out. I appreciate that, and we will have another round and 
hopefully be able to get some questions to our other two 
witnesses.
    I will turn now to Mr. Pearce for questions you may have.
    Mr. Pearce. Thank you, Mr. Chairman.
    Mr. Palmer, you had stated on page 6 that coal is a clean 
technology, and that differs somewhat from the testimony that 
Mr. Hawkins has given. Would you care to sort of bring those 
two concepts more in focus?
    Mr. Palmer. Yes, sir. There is no doubt that clean coal 
technology exists today to remove 100 percent of criteria 
pollutants, and by that I mean SOx, NOx. 
Mercury is in the developing stage. I should not say that. That 
exists today, but it is being developed today.
    There is no question in my mind that over time that whether 
through gasification or advanced clean coal technologies on 
super critical pulverized coal units that criteria pollutants 
are not and should not be a long-term concern for the American 
people as we increase our production and utilization of coal.
    I think where David and I differ, and I have the highest 
admiration for David and the ball that they have moved as they 
see the playing field at NRDC over the years. We have had this 
discussion off and on, and we probably will in the future with 
respect to the issue of carbon.
    Peabody is a part of a future gen project, and I served on 
the Future Gen Alliance Board for Peabody. Future gen is a 
project that is designed to perfect CO2 
sequestration technology in advanced power generation, and we 
are proud of that, but to jump-start the kind of industry that 
we are talking about today it cannot be carbon first, supply 
second. It has to be supply first, carbon second.
    I believe it is fair to state that the environmental 
community believes the biggest problem the world faces is 
climate change and global warming. From our standpoint as 
energy suppliers, we believe the biggest problem the world 
faces is energy supply and the potential for military conflict 
over energy supply in exchange of nuclear weapons over energy 
supply. That is where we come from.
    Mr. Pearce. Sure.
    Mr. Palmer. Now, we need to work on carbon at the same 
time, and in that regard I do agree with David and we need to 
push the envelope, but we cannot hold up the further 
development of coal utilization because of concerns over 
carbon.
    If we do, we will become more and more reliant on Middle 
Eastern oil and natural gas because the American people are 
going to demand energy, and they are going to get it, so we 
need to turn to coal today even while we pursue a technology 
path that President Bush has outlined, which we fully identify 
with and support and congratulate him for his leadership.
    Mr. Pearce. Thank you.
    Mr. Hawkins, Mr. Palmer stated that it appeared to be your 
primary motivator, the greenhouse gases, and you sort of ease 
up to this in your written testimony on page 6. You talk about 
there being inherent limitations when you compare the 
CO2 emissions from crude oil to liquified coal.
    Is there a level of gas price at which you would ever say 
that that draw, that equivalent--it appears your testimony does 
not say that it is worse; that it is at least equivalent. The 
value from many points of view is that if we are able to 
supplement our fossil fuels that we are able to then lower the 
cost of gas at the pump.
    Is there any price of gas at the pump at which you would 
personally say I believe I will take that 50 percent tradeoff; 
I believe I will take that equivalent because we could then 
have another source begin to address some of the questions that 
Mr. Palmer raises about the national defense?
    Mr. Hawkins. Thank you, Mr. Pearce. If coal were the only 
tool in the tool box I am sure I could come up with a number, 
but----
    Mr. Pearce. I did not ask if. We are talking here about the 
liquification. I do not care about the other technologies. I am 
just saying is there a point at which you would say I believe 
it is worthwhile to go ahead and explore?
    Mr. Hawkins. There is a point at which I would say that we 
need to pursue alternatives to petroleum, and that point is 
today.
    Mr. Pearce. I did not ask that question. My question is we 
are talking about the liquification of coal in this testimony, 
in this hearing today.
    Mr. Hawkins. And if you are asking me, sir, whether there 
is a point at which I would say that we should pursue coal 
before we pursue these other resources, the answer is no 
because these other resources are abundant, and they are 
available more quickly and with less environmental damage.
    Mr. Pearce. They have been abundant throughout your 
lifetime or mine, sir, and they still do not appear to be 
economic. That is the problem.
    The price of gasoline is at $3, moving toward $4 I suspect, 
and when it hits $4 it is going to move toward $5 if the 
Chinese and India continue their consumption curve. There is 
not a ceiling currently on it.
    I am just telling you that the alternatives are not nearly 
as accessible or as close as the liquification, and that is the 
reason we are having the hearing on this today. You are saying 
never, and that was what I would like to have on the record.
    I would like to go to the second round. I see my time has 
expired, Mr. Chairman.
    Mr. Gibbons. Thank you.
    Mrs. Drake?
    Mrs. Drake. Thank you, Mr. Chairman.
    I would like to thank each of you for being here. I think 
this is a fascinating discussion, and it was very fascinating 
reading your written testimony last night because you know 
where we are here in Congress. This is the thing America is 
angry about as the price has creeped up.
    Mr. Copulos, I think you made a very important statement 
that I wish everybody would hear and incorporate, and that is 
that we are either going to look at economic collapse or a 
global resource war.
    Since I have been a Member of Congress, which has only been 
just over a year now, everything that I have heard is that we 
will likely be at war with China in the next 10 to 15 years, to 
which my question has been why are we not using these 10 to 15 
years to not be at war with China? Why would we be at war with 
them? The answer is always resources.
    I appreciate what you have just said and laid it out just 
so simply, and I wish people would listen to that, but I guess 
my questions go first to sort of the bigger picture in trying 
to understand how liquid coal would work to us in the area of 
transportation.
    Would the properties of this be more like a gasoline type 
of fuel, or would it be more like a biodiesel type of fuel? 
What will it take for the auto makers? You know, there are 
going to be different types of engines based on the fuels that 
you want, or are they going to be interchangeable?
    Even if we were pulling this out of the ground today, how 
am I as the American consumer going to get what I need? I guess 
I am just trying to figure out how the whole picture comes 
together because it sounds like this technology is there. It is 
being done in other nations. How would it work here?
    Mr. Copulos. Well, to begin with you can produce just about 
any kind of fuel you want to depending on the catalytic 
process. That is one of the reasons I have pointed out that 
from a defense standpoint one specific interest there is that 
with the single fuel concept they need a lot of JP-8. 
Everything, whether the Abrams tank runs on it, Humvees, 
everything runs on JP-8.
    You can tailor a Fischer-Tropsch plant to get pretty much a 
specific fuel, so instead of needing that eight barrels of oil 
to get one barrel of jet fuel you can produce more directly the 
fuels that you need. You can produce gasoline.
    Britain just approved aviation fuel that is half synthetic 
and half from petroleum that South Africa is producing, and the 
only reason it is half and half is that they do not have enough 
of it to make it 100 percent jet fuel, so you are getting fuels 
that are identical to what you get from petroleum.
    Now, the other thing that you can do with this process is 
clean up the fuel whereas fuel coming from conventional 
petroleum may have SOx and NOx and all 
sorts of other criteria pollutants. You can tailor your process 
so they are eliminated on the front end, and you get a very 
clean burning fuel.
    In terms of how you do it, like everything else, you know, 
a journey of 10,000 miles starts with the first step. The first 
thing we do is decide we want to do it. Once that decision is 
made, I would strongly recommend that Congress establish a 
floor price for oil.
    Now, this is not just for synthetic fuels from coal. That 
concept is fuel neutral. It means ethanol, it means biodiesel, 
it means anything you want to produce is protected against the 
predatory moves that we have seen in the past from OPEC.
    You know, we had almost eliminated our imports from Saudi 
Arabia in 1985. In 1986, they crashed the price of oil and put 
most of our independent oil industry out of business and so on, 
so we need to provide an environment where investors are secure 
in the knowledge that they are not going to be subjected to 
monopolistic price manipulation.
    Having said that, you know, the next thing is deciding to 
do it and allow the private sector to move forward because I am 
sure that they will.
    Mrs. Drake. So if I understand you correctly then, we could 
be using liquid coal today in vehicles that could take diesel 
today?
    Mr. Copulos. Yes. Now, the fuels you get out of a coal-to-
liquids process are identical to their petroleum analogs. You 
could produce diesel. You could produce gasoline. You could 
produce methanol for E-85 or to be a source of hydrogen fuel. 
There is a whole range of things you could produce from coal.
    Mrs. Drake. So the distribution would be not a problem with 
coal?
    Mr. Copulos. Once it is turned into fuel there is no 
problem. You have pipelines that would run the fuel just as 
they do anything else.
    Mrs. Drake. Mr. Palmer, for you, and I guess too for all of 
you, are there two or three things that Congress could do?
    First of all, you passed my problem of how does the 
consumer get it. You have said the floor, but, Mr. Palmer, do 
you have any suggestions of what Congress should do, two or 
three things that we could do to bring this on line? I mean, it 
almost sounds like a miracle product.
    Mr. Palmer. It is a miracle product in that the technology 
exists. It has been overlooked, and most people are not aware 
of it, but it is there and readily available and useable.
    Particularly, I think the most important short-term thing 
we need to do is to make the Department of Defense secure in 
terms of the 300,000 barrels of day of refined products they 
use. That is a bunch.
    Mrs. Drake. Right.
    Mr. Palmer. Their budget is going north. The refinery bill 
did not pass last week because of a point of order. You need to 
pass that, and the Senate needs to pass it. That has fast track 
authority for refineries and has coal-to-liquid refineries in 
it.
    Giving DOD the permanent authority, without having to come 
back every year for appropriations, to enter into long-term 
offtake contracts from coal-to-liquid facilities with a price 
floor that is needed and a discount to future market and some 
sort of a floating mechanism I think is something that you 
should look at and do. That is 20 years.
    There are two other things. One is the Transportation Act 
fuel credit. It is 50 cents a barrel. I am sorry. Fifty cents a 
gallon for alternative fuels, including coal to liquids. That 
expires in 2009.
    It has no value to anybody under any circumstances because 
plants cannot be built by then. Of course, it did not score. I 
am sure that is the reason why it did not score, but that needs 
to be put out and made effective for a long enough period of 
time to get these plants up and running, and I say 2020.
    Finally, I would allow 100 percent depreciation of any 
dollar invested in any coal refinery put in. Fifty percent is 
in the Energy Policy Act that passed last year. That expires in 
2009 and has no value to anybody, or not very much. That needs 
to be extended to 2020. I would do that.
    If you did those four things, I promise you you will have 
an industry up and running within a five-year period on a very 
large scale.
    Mrs. Drake. Thank you very much. Thank you, Mr. Chairman.
    Mr. Gibbons. Thank you, Ms. Drake.
    Mr. Costa?
    Mr. Costa. I have nothing right now.
    Mr. Gibbons. Mr. Holden has joined us on the dais. Welcome, 
Mr. Holden, to the committee. Do you have any questions for the 
panel here?
    Mr. Holden. No questions.
    Mr. Gibbons. Let me take a few minutes and kind of wrap up 
some questions I have with this panel, and then we will give 
others a second chance as well.
    I just want to throw this out there and see what your 
answers will be. Our distribution system today of fuels that go 
from state to state for transportation fuels is privately held, 
privately constructed and in private investment. How do we 
dictate to those privately owned companies that they must carry 
alternative products in those pipelines that they do not and 
have not made themselves?
    It is sort of like the same conundrum we are in too when we 
have the electrical transmission lines that are owned by a 
power company, and you have a renewable resource power company 
that generates electricity that has to get into that system so 
that it can be used and incorporated, but that has an effect on 
the bottom line profitability of the company who has invested 
in the pipeline or the company who has invested in the pipeline 
and has the refinery.
    How do we get past that? Anybody have an idea? This is big 
government----
    Mr. Hawkins. I do not know the field, but certainly there 
is a precedent for assigning common carrier status to critical 
infrastructure investments. To the extent that today's pipeline 
systems do not have that common carrier status an obvious 
policy fix would be to clarify that and to establish it.
    Mr. Gibbons. So we would give an incentive to those 
companies to carry alternative fuels? Tax breaks or something 
of that nature?
    Mr. Hawkins. Well, I think it is a non-discrimination 
requirement that a company that operates that kind of capacity 
is not allowed to discriminate, but has to serve as a common 
carrier.
    Mr. Gibbons. You would still have a takings issue though.
    Mr. Hawkins. Yes, you would.
    Mr. Palmer. Mr. Chairman, I think the answer to that is to 
try to go in a path that uses what we have in place to the 
maximum extent that we can with incremental additions to 
pipelines and common facilities using the footprint of what 
exists there today.
    In our space, in the National Coal Council study, when we 
talk about coal to natural gas you could make a pipeline 
quality gas that could go in a pipeline. You can blend it. Not 
a problem. You use what exists there today.
    If you make a fuel gas you can make the fuel gas, which is 
a lower BTU quality gas, specifically at what I call cold iron 
power plants, which are the combined cycle natural gas units 
that are not running. You can blend it there, and you can use 
it there or in an industrial facility like Eastman Chemical 
does.
    On coal to liquids, when making a refined diesel product 
that is environmentally superior to existing diesel, you can 
use the infrastructure that is in place for the transport of 
that, whether pipelines, rail cars, et cetera. It is ready to 
go, and to put in a car I think from a fuel efficiency 
standpoint diesel is clearly better. I think the Fischer-
Tropsch diesel passes any of the California standards, and that 
is the path I would go.
    Mr. Gibbons. Let me ask another question and just throw it 
out there for consideration as well because it is one that 
troubles or puzzles me.
    We have Federal regulatory environments which put 
restrictions out there, barriers and obstacles, but we also 
have state controls, state regulations, state barriers. What 
incentives do we give states to enable or promote this kind of 
alternative fuel either in the construction--how do we get them 
to take an interested role in this to promote this on a state 
level?
    We can do this at the Federal level, but you always know 
that states have the right to make laws that are more 
restrictive than the Federal side of it. What do we do there?
    Mr. Palmer. To get buy-in on this, the bids on future gen 
are due today. We expect to have 23 or 22 bids from nine 
different states for this $1 billion clean coal technology 
demonstration plant. There is a lot of interest in it and a lot 
of enthusiasm over it.
    If you created a similar environment with DOD plants--let 
us say we are going to have five Fischer-Tropsch 50,000 barrel 
or three 50,000 barrel a day plants. We are going to set up a 
bidding criteria. Who wants these where?
    You would get state buy-in in a big way to come in and help 
pay for these plants, put them in, liquify coal, supply the 
Department of Defense with the fuels that they need on a 
regional basis and create a coalition that way using the future 
gen as a model for that.
    Mr. Gibbons. Anyone else have something different they want 
to add? Yes, Mr. Hawkins?
    Mr. Hawkins. Yes. I think a critical element is to make 
sure that these new technologies are designed so that they are 
regarded as good neighbors, good neighbors by the communities 
where they are going to be located and good neighbors in terms 
of meeting the Nation's environmental goals because it will be 
shortsighted to offer a lot of money for something that is 
going to be controversial because it is not designed to be a 
good neighbor environmentally.
    Mr. Gibbons. Anyone else?
    [No response.]
    Mr. Gibbons. Mr. Pearce?
    Mr. Pearce. Thank you. Mr. Copulos, your report has a lot 
of numbers, and I appreciate that. Do you have any ballpark 
figure of what it would take per gallon to liquify if we were 
doing that today under current technology and regulatory? What 
would the price of diesel cost?
    Mr. Copulos. We have an expert panel to follow us who are 
going to answer that question, and I am going to stick around 
and listen.
    Mr. Pearce. Just approximately?
    Mr. Palmer. I have seen $35 to $40 a barrel equivalent 
crude oil.
    Mr. Copulos. Yes. We have actually looked at that number of 
$35 to $40. We have also looked at the cost of construction.
    According to what Sasol's latest numbers are, it is about 
$25,000 per installed barrel of capacity so actually when you 
look at it compared to drilling for oil and building a refinery 
and so on it is quite competitive and quite economical on that 
side.
    The fact is that this can be done economically, and the 
other thing we have to bear in mind is that when you create an 
industry like that here at home you are kind of getting a 
double whammy economically. You are not having a loss of 
investment overseas.
    You are getting the creation of jobs and so on here at 
home, so it is quite an economic spur in addition to which you 
eliminate the uncertainties that we currently function under 
because of our dependence on imported oil. You know, you have 
Venezuela threatening to cut us off and everything else.
    Mr. Pearce. Yes. Yes. Are there other technologies? In 
other words, you describe in your report from a national 
security point of view that we are rushing toward disaster, one 
of our own making, and if we are going to expeditiously begin 
to have sources of energy other than this just without 
embellishing just name them. List them if you would.
    Mr. Copulos. Well, in addition to the Fischer-Tropsch made 
coal do you mean other resources? You can use Fischer-Tropsch 
with natural gas. You can use a fast pyrolysis on cellulosic 
waste that will make a very nice No. 6 fuel oil.
    Obviously we have a variety of ethanol processes out there. 
There is no lack of technologies. There are a lot of 
technologies. What we need to look at though is the time 
horizon. How quick can we do some of these things?
    In looking at what you can do quickly, you look at what you 
know works. That is one reason Fischer-Tropsch--and Fischer-
Tropsch is not limited to coal. You can do natural gas. You can 
do a whole bunch of different things.
    That is why people focus on that. They know it works. They 
know it produces clean fuel. We know how to do it. It uses an 
iron catalyst or cobalt catalyst so you do not have some of the 
materials issues.
    Mr. Pearce. Sure. Mr. Palmer, just very short because I 
have a couple more questions here. If you have the tax 
incentive, the things that you had talked about as being 
necessary, how long would it take to have an impact in the 
marketplace if we were to use----
    Mr. Palmer. I think the prospect of it would have an impact 
on the marketplace when these projects started. When steel got 
on the ground let us say two years from now----
    Mr. Pearce. Two years from now?
    Mr. Palmer.--I think that would have an effect on the 
marketplace.
    Mr. Pearce. That would have an effect? Yes.
    Mr. Palmer. Maybe a year from now. If you pass this, in a 
week.
    Mr. Pearce. Sure. OK.
    Mr. Palmer. If you go put it in, it would have an effect.
    Mr. Pearce. It may be a two-year process.
    Mr. Palmer. No question it would have an impact in my mind.
    Mr. Pearce. Mr. Hawkins, you had wanted to list the 
renewables that you felt like were sufficient, and I was 
driving at a different point. If you could just list those 
renewables in the order that you think they are accessible and 
available?
    Mr. Hawkins. It is efficiency and renewables, and the first 
one is to improve the efficiency of the new car fleet. We have 
tremendous opportunities there technologically.
    Mr. Pearce. List them out.
    Mr. Hawkins. That is one.
    Mr. Pearce. Yes.
    Mr. Hawkins. OK. The second is very mundane. Replacement 
tires. Make replacement tires be as fuel efficient as the 
original equipment tires on the vehicles.
    Third is efficiency improvements in the heavy duty truck 
side. Then biofuels can be accelerated more rapidly than they 
are today, and also wind power in the grid serving plug-in 
hybrids is another way that renewables can contribute to 
backing out oil.
    Mr. Pearce. OK. I appreciate that. My last question, Mr. 
Chairman, would be, Mr. Hawkins, you were pretty 
straightforward on where you were on your desire not to convert 
over to liquified coal.
    Since petroleum products produce about the same carbon 
emissions would you, if you had it within your power, make 
policy that would cause a conversion immediately from that 
source that is putting equal amounts of carbon into the air as 
you kind of oppose to coal?
    Mr. Hawkins. Not immediately because that would be 
impracticable, but I do agree with the President that the 
country is addicted to oil, and I agree with the initiatives 
that he has proposed to reduce our dependence on oil.
    That, if it is done correctly, will also have the benefit 
of reducing the global warming emissions from oil. We have to 
do it gradually, and because we have to do it gradually we need 
to get started now.
    Mr. Pearce. With your permission, Mr. Chairman, I know I am 
over, but you would not do it immediately. Could you give me 
some time frame for what you think is rational and gradual 
implementation?
    Mr. Hawkins. Well, as I mentioned in my testimony, we have 
laid out a program in our report called Securing America that 
would reduce oil consumption by 2025 by 11 million barrels a 
day.
    Mr. Pearce. OK. Thank you, Mr. Chairman.
    Mr. Gibbons. Ms. Drake?
    Mrs. Drake. Thank you, Mr. Chairman.
    Mr. Copulos, I found it fascinating when you were talking 
about the full cost of a gallon of gas, and I wondered if you 
could repeat that and expand on it, you know, the cost 
including everything else that is built in and how are we 
paying that cost?
    Mr. Copulos. Well, some of it we pay directly, some of it 
indirectly. When we look at the elements we included we looked 
at, first of all, what were the defense costs. That was most 
obvious. In 2003 we were spending $49.1 billion a year to 
defend the flow of oil from the Persian Gulf. I should note 
that this is a longstanding commitment we have had since 1945.
    It is perfectly legitimate to protect our oil sources, but 
people just do not realize that that is in the defense budget. 
This was derived through a very painstaking and detailed 
analysis, which I will not bore you with, where it is an 
accurate figure. This year that figure has gone up to $132.8 
billion because we are actively engaged in the region.
    We looked at direct and indirect costs. When you send a 
dollar overseas, that means it is not invested here. It does 
not create jobs here and so forth. That was $159.9 billion in 
2003. I do not have the specific figure in front of me here, 
but it is several times that today.
    We looked at also the question of oil shocks, oil supply 
disruptions. We had that the cost of the oil shocks of the 
1970s was between $2.2 trillion and $2.5 trillion. Before 
anyone says that sounds high, I should note that Oak Ridge puts 
it at between $4 trillion and $8 trillion, so we are very 
conservative.
    We chose to amortize that over 30 years because the effect 
extends, you know, beyond the actual event. Right now we are 
seeing effects of an oil shock on our economy even as we speak 
with the price going up, so we think that is a legitimate 
figure.
    You pay directly your defense costs. You pay directly in 
some cases through higher interest charges, unemployment and so 
on. Part of the economic cost is an opportunity cost--lost 
employment, wages and so on and loss in GDP. That is how we 
derive these figures.
    As I said, if you want to amortize across the entire volume 
of oil it is $5.04 a gallon. We believe that you also have to 
consider the Persian Gulf imports separately in terms of the 
defense costs because we are not spending money to defend oil 
from Canada or the North Sea. We are defending the Persian 
Gulf. When you attribute that directly the hidden cost is 
$8.35.
    Mrs. Drake. We had a hearing recently with the military and 
Federal lands and some of the alternative fuels that they are 
using, so I am wondering. The Department of Defense, are they 
very receptive to what you are proposing?
    Mr. Copulos. DOD is very--in fact, the TAC Automotive and 
Armor Command is way ahead of DOE and the other departments in 
terms of their R&D and to alternative fuels.
    They just announced they have this heavy equipment--it is a 
tow truck for an Abrams, a 70 ton Abrams tank that is a diesel/
electric hybrid. I actually rode in one. They have a whole 
range of alternatives they are looking at and for good reason.
    Seventy percent to 80 percent of the cargo carried in the 
battlefield is fuel, 10 percent is water and 10 percent is 
everything else from bullets to beings, so obviously fuel is an 
enormous issue, logistical issue, and it is an enormous cost. I 
have seen numbers all over the chart, but as best as we can 
tell a gallon of fuel delivered in the field costs about $13.
    As such, to the extent that you can reduce the need for 
fuel, reduce consumption, you are ahead of the game. Also, you 
know, if you take a look at the contemporary battlefield in the 
Gulf War the 582,000 troops we sent used more than twice as 
much oil on a daily basis as the entire 2-million-man Allied 
expeditionary force that invaded Europe.
    Between the Gulf War and Operation Iraqi Freedom, our 
requirement per deployed soldier increased 20 percent. It is 
now one barrel of refined product for every service member we 
have in the field. It is an enormous number, and it is going to 
go up even more in the future when we look at the Stryker 
Brigade combat teams and all the other very fuel-intensive 
systems we have.
    Mrs. Drake. Right.
    Mr. Copulos. It is critical. That is one reason we looked 
in particular at DOD and why they are looking at all sorts of 
alternatives because they know they are going to need it and 
not always be able to get it.
    Mrs. Drake. Right. Thank you.
    I yield back, Mr. Chairman.
    Mr. Gibbons. Thank you very much.
    Mr. Costa?
    Mr. Costa. Thank you very much, Mr. Chairman.
    Mr. Hawkins, I understand that last month you appeared 
before the Senate Energy and Natural Resources Committee and 
stated that fortunately you can have a robust and effective 
program to reduce oil dependency without rushing to embrace 
coal-to-liquid technologies.
    Could you explain to us how you expect to get there? I 
mean, are there proposals to reduce this dependency absent a 
significant coal-to-liquids program? I mean, we all clearly 
remember 1973 with the first gas lines and President Nixon's 
proposal for energy independence and to relieve our sources of 
foreign oil. I believe every President since President Nixon 
has come up with their own branded energy program.
    In those days we were about 30 percent dependent upon 
foreign sources of energy. Today we are almost 60 percent, 
notwithstanding all those programs or proposals, and I know we 
are competing against India and China for those resources.
    You talked about the President's strategy, but I would like 
you to elaborate.
    Mr. Hawkins. Certainly. As I mentioned, the report, 
Securing America, that we and the International Agency for 
Global Security developed, lays out a program that would save 
more oil more quickly than the program that Mr. Palmer 
described in the National Coal Council.
    That program called for a 2.6 million barrel a day savings 
by 2025, as I recall. We have laid out a program that pursues 
efficiency and renewable energies that would save three million 
barrels a day by 2015 and over 10 million barrels a day by 
2025, and it would do it with a system of technologies that are 
robust for the world that we have to prepare for.
    That is our basic point that it makes no sense to build a 
large, new industry that ignores the global warming problem and 
that makes it worse if you do not capture the CO2.
    That is all we are asking this committee to look at is to 
consider not just today, but tomorrow, and all the investments 
that the American taxpayers are perhaps going to be asked to 
subsidize. Are they robust? Will they be a lasting industry, or 
will they lock us into global warming emissions which 
ultimately are going to come out of other people's pockets 
because we are going to have to cut back on those emissions, so 
our view is we need to find strategies and energy resources 
that both cut our dependence on foreign oil and cut our 
dependence on high carbon emissions to the atmosphere.
    Fortunately we have a good set of alternatives. In terms of 
time to deployment, there is not a barrel of Fischer-Tropsch 
fuel supplying American needs today, but there are four million 
gallons a year of ethanol, and we are going to go up to eight 
billion.
    Mr. Costa. And I am an advocate of the biofuels and 
ethanol. You know, in California we for several decades tried 
to use a multitude of strategies in terms of renewables with 
varying degrees of success, and I do believe that there are a 
multitude of strategies that we can employ in terms of our 
energy toolbox, but what seems to be lacking is a consistent 
plan that can pragmatically be implemented using the market 
forces and providing incentives at the right place.
    I mean, we can look back clearly at our history over the 
last three decades of what has not gone right or where the lack 
of right has been. You know, maybe this, and I do not think we 
are going to see in the foreseeable future cheap fuel any more 
in terms of the dollars, of what a barrel of oil costs.
    That having been said, is this crisis going to be the one 
that finally allows us to come together as a country and get 
serious about this?
    Mr. Hawkins. Well, I certainly hope it is. I think that 
there are some very interesting parallels between the oil 
dependency crisis and the global warming crisis. Both of them 
take a long time to develop. Both of them are entirely 
entangled with our energy supplies, and both of them take a 
long time to solve, which means we need action today.
    All we are saying is let us make this an integrated 
program. Let us not solve one problem and make the other one 
worse.
    Mr. Costa. Excuse me. I know I am out of time, Mr. 
Chairman, but with the Science Committee with the Chairman in 
January from Antarctica there is obviously a large testimony of 
evidence to indicate that whether or not the hockey stick 
effect is real or not. It is clear that we are having dramatic 
changes in our climate, and I believe we are partially 
responsible for those changes, and we have to address that.
    I am not convinced that we have a strategy that has buy-in 
from all the key sectors to allow us to do both the energy 
changes we need to make, as well as to deal with our air 
quality, but I hope you are right. I hope we are moving in that 
direction.
    Mr. Gibbons. Thank you, Mr. Costa.
    To the first panel, I want to thank you very much for being 
here today. It is clear that we have to do everything to meet 
the needs of energy for the future, as well as what we need to 
do to work on to make sure we do it cleanly and acceptably.
    I think there are a lot of interesting proposals that have 
been presented today, and we certainly appreciate the 
testimony. We will excuse our first panel with again a thanks 
from the committee.
    [Panel excused.]
    Mr. Gibbons. We will call up our second panel, which 
consists of Mr. John Rich from Waste Management and Processors, 
Inc.; Hunt Ramsbottom of Rentech, Inc.; John Ward from 
Headwaters Inc.; Robert Kelly, DKRW Energy; and Garry Anselmo, 
Silverado Green Fuels.
    Gentlemen, if you would be so kind as to take the 
appropriate seat up there? Actually, before you have a chance 
to sit and then stand up again, we have an oath to give you, so 
when you are ready. I think we are going to have to get real 
comfortable. We have five people on this panel.
    You know, the technical problems we are working on. That 
will work, but, as you can tell, we only have four microphones 
so we are going to have to share. Can we figure out where 
everybody is sitting? You know, this is not really that 
complicated. This is what leadership is all about, right? Let 
us get this settled.
    Gentlemen, welcome. Before we hear from each of you we have 
a requirement from the committee to swear you in, so if you 
would all raise your right hands?
    [Witnesses sworn.]
    Mr. Gibbons. Let the record reflect that the witnesses, 
each of them, answered in the affirmative.
    I would like to turn now to Mr. Tim Holden from 
Pennsylvania to introduce his guests and constituents. Mr. 
Holden?
    Mr. Holden. Thank you, Mr. Chairman, and thank you for 
allowing me to be with you today.
    Mr. Chairman, first of all, thank you for having this 
hearing on the future of coal. I represent the majority of the 
anthracite coal fields of Pennsylvania, along with Paul 
Kanjorski and Don Sherwood.
    Mr. Chairman, as you and I had the opportunity to speak 
yesterday, we have more recoverable coal in this country than 
the rest of the world has in recoverable oil, and we need to 
find a way to take advantage of this natural resource.
    Mr. Chairman, thank you for allowing me to introduce my 
constituent and my friend, John Rich, who has I was going to 
say dedicated his entire adult life to the coal-to-liquid 
project, but at least the last 14 years I know he has dedicated 
that I have served in this Congress. You will hear from the 
energy and enthusiasm and conviction of his testimony how 
involved he and his company are in this process and how they 
are moving forward.
    Finally, Mr. Chairman, I would just like to leave you with 
that this is a project that the Federal government through two 
Administrations has been a true partner. In the Clinton 
Administration we were able to secure the initial $9 million. 
Two Pennsylvania Senators and the Bush Administration have been 
able to receive I believe, and John can correct me if I am 
wrong, a $90 million investment and also a loan guarantee for 
this project.
    We are having a little trouble with the Department of 
Energy working through the bureaucracy on the guarantee so, Mr. 
Chairman, maybe with your help and Mr. Pombo and Mr. Rahall and 
our two Senators maybe we can try to move that along.
    Again, Mr. Chairman, thank you for allowing me to introduce 
my constituent and friend, Mr. John Rich. Thank you.
    Mr. Gibbons. Mr. Holden, we are happy to have you here 
present today. We are happy to have your constituent, and, 
believe me, we are very interested in making sure that what we 
can do as a Congress helps answer some of these energy 
problems.
    With that we will turn to our witnesses. Again, each of 
you, welcome. We will start with Mr. John Rich from Waste 
Management and Processors, Inc.
    Mr. Rich, you have had a glowing introduction. The floor is 
yours. We look forward to your testimony and hope you can live 
up to Mr. Holden's kind comments.
    Mr. Rich?

                STATEMENT OF JOHN W. RICH, JR., 
                   PRESIDENT, WMPI PTY., LLC

    Mr. Rich. All right. Thank you, Mr. Chairman, members of 
the Subcommittee and my good friend, Congressman Holden.
    I commend you for holding this hearing this morning. Coal 
to liquids is the most important resource topic and technology 
you could focus on and over the next decade the most important 
technology to ensure U.S. energy and economic security.
    My name is John Rich, President of WMPI, a privately held 
Gilberton, Pennsylvania, based company engaged in developing 
and subsequently operating the Gilberton Waste Coal to 
Ultraclean Transportation Fuels plant. We first started 
investigating coal to liquids in the late 1980s and initiated a 
concerted effort in developing the project in the mid 1990s.
    The Gilberton coal-to-liquids plant will convert abundant 
anthracite coal waste into zero sulfur, high cetane, ultraclean 
transportation fuels and electric power. Simultaneously, WMPI 
will reclaim large areas of abandoned mine lands.
    The plant will gasify the coal wastes to produce a gas 
which will then be converted into liquid fuels via Fischer-
Tropsch synthesis. Part of the gas will also be used to provide 
up to 41 megawatts of clean electric power and steam.
    Our progress to date includes the Pennsylvania Department 
of Environmental Protection having issued the air permit, the 
Susquehanna River Basin Commission having issued the water 
withdrawal permit. The environmental impact statement is in the 
final stages of review. The site, the feedstock, the 
infrastructure is available to WMPI and under our control.
    Among the project participants are Nexant, an affiliate of 
the Bechtel Company; Shell Global Solutions U.S., who will be 
providing the front end technology, gasification technology. 
Sasol Technology, Ltd., the world leader in FT synthesis, will 
provide the essential technology that converts to gas into wax. 
Chevron Lummus Global will provide the technology that converts 
the wax into zero sulfur transportation fuels.
    WMPI has engaged Uhde and Black & Veatch, both global 
engineering companies, to design, build and startup the plant, 
and WMPI has engaged Morgan Stanley and United Bank of 
Switzerland as financial advisors and underwriters to guide us 
in securing the financing.
    WMPI is in the final stages of concluding an offtake 
agreement offered by Pennsylvania Governor Rendell for the 
diesel fuel produced. The Commonwealth of Pennsylvania has 
provided a transferable investment tax credit which will fund 
approximately seven percent of the capital cost of the project.
    Two competitively awarded Department of Energy programs, 
the Early Entrance Co-Production solicitation and the Clean 
Coal Power Initiative solicitation, have been awarded to WMPI 
and have been essential to the success of the project.
    The benefits of this are many. The United States will be 
taking meaningful steps toward reducing its dependence on 
imported oil. Our plant feedstock is not subject to foreign 
manipulation as is the situation today with OPEC oil. The 
Gilberton plant will provide 1,000 construction jobs and during 
operation 600 primary and secondary jobs, all new jobs.
    Successful commercialization of the technology throughout 
the U.S. will bring substantial socioeconomic benefits to the 
Nation's coal regions by trapping a portion of dollars that 
currently are being exported to purchase foreign oil. Moreover, 
the Gilberton plant will cause the cleanup of millions of tons 
of waste coal and the reclamation of abandoned mine land.
    The facility will provide superior transportation fuels--
the naphtha, the kerosene, the diesel fuels that are virtually 
free of sulfur. The FT naphtha can be upgraded to a high 
octane, clean reformulated gasoline. The FT diesel or the FT 
kerosene is low in smoke point and has special applications as 
a military jet fuel.
    WMPI has had material similar to what we will be producing 
in Gilberton shipped from South Africa to Wright-Patterson Air 
Force Base which was tested by the DOD for its single 
battlefield fuel applications with very positive results.
    The FT diesel can be incorporated and distributed through 
the existing infrastructure and exceeds all government fuel 
specifications.
    What can Congress do? These plants are very complex. The 
individual components are developed and commercial, but no one 
has integrated the Shell entrained flow gasifier with Sasol FT 
technology. Investors are reluctant to invest in first-of-kind 
approaches.
    Furthermore, China is moving ahead with an aggressive coal-
to-liquids effort, and daily we are competing for limited 
resources such as shop space, engineering expertise, et cetera. 
Time is definitely against us.
    With that in mind, Senator Santorum and Senator Specter 
included a provision in the Energy Policy Act of 2005 for DOE 
to provide a loan guarantee for our project. If Congress would 
expedite this guarantee, WMPI could close financing and start 
construction this year.
    If Congress would expedite DOD entering into long-term 
offtake agreements, this would facilitate our efforts to 
finance future projects while simultaneously reducing the 
uncertainty in DOD costs and availability of fuel.
    Finally, streamlining the environmental permit review for 
defense-related contracts would speed up the financing, 
construction and operation of these facilities, expediting not 
only the ultraclean transportation fuels commercialization 
generally, but making the country more secure specifically.
    Within the next several years, WMPI and other companies 
plan to expand their operations into western Pennsylvania, West 
Virginia, Kentucky and other western states and could produce 
up to 20 percent of the domestic transportation fuels that we 
are currently importing.
    Thank you for this opportunity, and I welcome any 
questions.
    [The prepared statement of Mr. Rich follows:]

        Statement of John W. Rich, Jr., President, WMPI Pty. LLC

Introduction
    Thank you, Mr. Chairman, Members of the Subcommittee and 
Congressman Holden. I commend you for holding this hearing this 
morning. Coal-to-liquids is the most important resources topic and 
technology you could focus on and, over the next decade, the most 
important technology to insure U.S. energy and economic security.
    My name is John Rich, Jr., the President of WMPI Pty., LLC., a 
privately held, Gilberton, Pennsylvania based company engaged in 
developing and subsequently operating the Gilberton Waste Coal to 
Ultraclean Transportation Fuels plant.
    We first started investigating coal-to-liquid fuels in the late 80s 
and initiated development in the mid 90s.
    The Gilberton Coal to Liquids plant will convert abundant 
anthracite coal waste into zero sulfur, high Cetane, ultraclean 
transportation fuels and electric power. Simultaneously, WMPI will 
reclaim large areas of abandoned mine lands. The plant will gasify the 
coal wastes to produce a gas which will then be converted into liquid 
fuels via Fischer-Tropsch (``FT'') synthesis. Part of the gas will also 
be used to provide up to 41MW of electric power and steam.
To Date:
    1.  The Pennsylvania Department of Environmental Protection has 
issued the air permit; the Susquehanna River Basin Commission has 
issued the water withdrawal permit; the Environmental Impact Statement 
is in the final stages of review.
    2.  The site, feedstock and infrastructure is available to WMPI.
    3.  Among the project participants are:
           Nexant, Inc., an affiliate of Bechtel Corporation;
           Shell Global Solutions U.S., who will be providing 
        the front end gasification technology;
           SASOL Technology Ltd., the world leader in FT 
        Synthesis will provide the essential technology that converts 
        the gas into a wax;
           ChevronLummus Global, will provide the technology 
        which converts the wax into zero sulfur transportation fuel;
           WMPI has engaged Uhde and Black & Veatch, both 
        global engineering companies, to design, build and startup the 
        Gilberton Plant;
           WMPI has engaged Morgan Stanley and UBS as financial 
        advisors and underwriters to guide us it in securing the 
        financing.
    4.  WMPI is in the final stages of concluding an offtake agreement 
offered by Pennsylvania Governor Rendell for the diesel fuel produced.
    5.  The Commonwealth of Pennsylvania has provided a Transferable 
Investment Tax Credit which will fund approximately 7% of the project 
cost.
    6.  Two competitively awarded Department of Energy programs, the 
Early Entrance Co-Production solicitation and Clean Coal Power 
Initiative solicitation have been awarded to WMPI and have been 
essential to the success of the project.
Benefits are Many
    1.  The United States will be taking meaningful steps toward 
reducing its dependence on foreign oil. Our plant feedstock is not 
subject to foreign manipulation as is today's situation with OPEC oil.
    2.  The Gilberton Plant will provide 1000 construction jobs and 
during operation approximately 600 primary and secondary jobs.
    3.  Successful commercialization of the technology throughout the 
U.S. will bring substantial socioeconomic benefits to the Nation's coal 
regions by trapping a portion of the dollars currently being exported 
to purchase foreign oil.
    4.  Moreover, the Gilberton Plant will cause the cleanup of 
millions of tons of waste coal and reclamation of abandoned mine land.
    5.  The facility will provide superior transportation fuels--the 
naphtha, kerosene and diesel fuels which are virtually free of sulfur, 
low in particulates and aromatics.
           The FT naphtha can be upgraded to a high-Octane, 
        clean reformulated gasoline.
           FT kerosene is low in smoke point and has special 
        application as military jet fuel. WMPI has had material 
        similar, to what will be produced in Gilberton, shipped from 
        South Africa to Wright-Paterson Air Force Base which was tested 
        by the DOD for its Single Battlefield Fuel of the Future 
        Program with positive results.
           The FT diesel can be incorporated and distributed 
        through the existing infrastructure and exceeds all government 
        fuel specifications.
What Can Congress Do?
    These plants are very complex. The individual components are 
developed and commercial, but no one has integrated the Shell entrained 
flow gasifier with the Sasol FT technology. Investors are reluctant to 
invest in first-of-kind approaches. Furthermore, China is moving ahead 
with an aggressive coal-to-liquids effort and, daily, we are competing 
for limited resources such as shop space, engineering expertise, etc. 
Time is against us. With that in mind, Senator Santorum and Specter 
included a provision in the Energy Policy Act of 2005 for DOE to 
provide a loan guarantee for our project.
    1.  If Congress would expedite this guarantee, WMPI can close 
financing and start construction this year.
    2.  If Congress would expedite DOD entering into long-term offtake 
agreements, this would facilitate our efforts to finance future 
projects while simultaneously reducing the uncertainty in DOD costs and 
availability of fuel.
    3.  Finally, streamlining the environmental permit review for 
defense related contracts would speed up the financing, construction 
and operation of these facilities, expediting not only the ultraclean 
transportation fuels commercialization generally but making the country 
more secure specifically.
    Within the next several years WMPI and other companies plan to 
expand their operations into western Pennsylvania, West Virginia, 
Kentucky and other western states and could produce up to 20% of the 
domestic transportation fuels that we are currently importing.
    I thank you for giving me the opportunity to discuss these issues 
and I am ready to answer any questions which you might have.
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Mr. Rich. We appreciate 
you being here and look forward to the question and response 
period later on.
    I turn now to Hunt Ramsbottom from Rentech, Inc. Mr. 
Ramsbottom, welcome. The floor is yours.

               STATEMENT OF D. HUNT RAMSBOTTOM, 
                CEO AND PRESIDENT, RENTECH, INC.

    Mr. Ramsbottom. Thank you, Mr. Chairman, distinguished 
Members and guests. I am Hunt Ramsbottom, President and CEO of 
Rentech. We are a publicly held company listed on the American 
Stock Exchange. For 25 years, Rentech has engaged in research 
and development on ultraclean fuels that can be produced from 
coal and petroleum coke.
    I am passing around--I think you have up there--a sample of 
our clean fuels. It is very different from petroleum diesel. It 
is clear, refined to a high degree of purity and extremely low 
in particulates and sulfur.
    Rentech's fuel does not require engine modification. It can 
be used in trucks, buses, barges, blended with petroleum diesel 
or blended with other alternative fuels, including biodiesel. 
It can also be processed into jet fuel as discussed earlier.
    We currently hold 20 U.S. patents on our process. We have 
tested our innovations in six pilot plants for over 20 years. 
Our seventh process demonstration unit is scheduled to be 
operating the first half of 2007 for further demonstration, 
analysis and training on our products.
    We are on track to have a fully commercial plant up and 
running by 2010. Our focus is making transportation fuels in 
the U.S. from coal and petroleum coke. We can locate our plants 
anywhere with access to these resources.
    We are environmentally friendly both in our fuel and our 
manufacturing process. As we manufacture our fuel we remove the 
most harmful regulated pollutants. Sulfur and mercury, for 
example, drop out as elements in the gasification stage. We are 
also working to reduce unregulated emissions of greenhouse 
gases.
    Our current proposed plant in Mississippi offers the 
opportunity for 100 percent carbon capture and storage. Local 
oil fields would use our carbon monoxide to force out 
additional oil in the region and trap our carbon underground. 
Our fuel also runs cleaner than petroleum diesel, has a longer 
shelf life and is biodegradable.
    Clean fuel is currently economically competitive. We can 
produce our finished fuels for $36 to $42 per barrel, the 
equivalent of raw crude at $30 to $35 per barrel. It does take 
commitment and capital to start a new industry, as we discussed 
today. As many keen observers point out, everyone wants to 
build a second plant. Building a commercial industry requires a 
first plant.
    To overcome the financial hurdles, Rentech has developed a 
five point strategy for commercialization. First, we are jump-
starting deployment of our Rentech process by pairing it with 
gasification technology in our new East Dubuque facility. 
Second, we are pursuing multiple strategic projects throughout 
the U.S.
    Third, we are developing repeatable and scalable design to 
produce up to 50,000 barrels per day. Fourth, we are continuing 
to invest heavily in our research and development as we have 
done historically. Fifth, we are looking at selected licensing 
opportunities of our process throughout the United States.
    Our first clean fuels plant is underway right now. Last 
week we purchased a fertilizer plant in East Dubuque. We will 
convert that facility from extensive natural gas to affordable 
Illinois coal to produce fuels, fertilizer and electricity. By 
2010, it will produce 1,800 barrels per day in Phase 1. A year 
later it will produce 6,800 barrels per day in Phase 2.
    Our second plant in Mississippi will produce 11,000 barrels 
per day in Phase 1, and we are looking at additional 
opportunities across the U.S., including discussions with major 
coal companies, to produce plants up to 50,000 barrels per day 
near their mines.
    Today the U.S. produces and consumes over two million 
barrels per day of diesel with demand projected to double in 
the next 20 years, so a thriving clean fuels industry is vital 
to our future.
    As we launch this industry, Rentech plans to make full use 
of the EPACT 2005 incentives. Thank you for you efforts in 
making them available. Illinois and Mississippi have also been 
exceptionally helpful.
    Rentech is not asking the government to subsidize clean 
fuels. We need your help to create a climate where we can use 
private sector funding to establish a fully commercial 
industry. There are four ways that you can help us jump-start 
this industry:
    First, support appropriate investment tax credits. We will 
apply for the industrial tax credit, and efforts to raise the 
current $350 million cap to $850 million would help even more. 
You should consider lifting the cap altogether. A separate 
clean fuels tax credit would do even more to get production 
going.
    Second, make the fuel excise tax credit available to clean 
fuels by extending the 50 cents per gallon credit from 2009 
when no plants would be operating to at least 2014.
    Third, fully fund and implement the Federal loan 
guarantees. We will apply for the self-pay guarantees in the 
first quarter of 2007 as we convert our first plant.
    Fourth, support military consideration for clean fuels. 
Long-term DOD contracts for diesel or jet fuel would assist 
greatly with the financing of these facilities.
    This combination of incentives and contracts will provide 
the initial climate and stability needed to propel private 
investment. We are excited about clean fuel that can help meet 
our national energy needs, foster energy independence, preserve 
our energy security and protect our environment.
    Thank you for your help. Thank you for your support today.
    [The prepared statement of Mr. Ramsbottom follows:]

                   Statement of D. Hunt Ramsbottom, 
                    CEO and President, Rentech, Inc.

    Thank you, Mr. Chairman. Distinguished Members of Congress and 
guests, I am Hunt Ramsbottom, the President and CEO of Rentech, Inc. 
Rentech is a publicly held, Denver-based firm listed on the American 
Stock Exchange. For 25 years, Rentech has engaged in research and 
development, focusing on enhancing the production of ultra-clean fuels 
made from coal, petroleum coke and natural gas.
Rentech's Clean Diesel
    I am passing around a sample of Rentech's ultra-clean fuel--in this 
case, our diesel. As you can see, it is very different from petroleum 
diesel. It is clear, refined to a high degree of purity and extremely 
low in both particulates and sulfur. The familiar belching cloud you 
see when a diesel truck or bus starts to accelerate is caused by 
particulates, and recent studies have shown that they potentially have 
long-term harm to human and environmental health--but our fuel 
eliminates most of that concern. When the Air Force tested our fuels 
and similar fuels made by competitors, the tests showed reductions in 
particulates of up to and over 80%. The Rentech fuel is also extremely 
low in sulfur--less than 1 part per million, far under the new EPA 
standard of 15 ppm.
    Rentech's fuel doesn't require any engine modifications. It can be 
used as is as the operating fuel for trucks, buses and barges. It can 
also be blended with petroleum diesel or alternative fuels such as 
biodiesel. It can even be processed into jet fuel.
    The basic chemistry behind our fuel products has been known for 7 
decades. The basic technology has been developed and used extensively 
in other countries. Rentech currently holds 20 U.S. and 4 foreign 
patents making the process more efficient and effective. We have tested 
our innovations in six pilot plants over the past 20 years.
    The 7th pilot, our Process Demonstration Unit (PDU), is scheduled 
to be operating by the first half of 2007. It will produce 10 barrels 
per day (bpd) for demonstration, analysis and training by potential end 
users. And it will allow us to optimize our technology for variations 
in coal and other site-specific factors. We now have developed our 
technology extensively around Coal-to-Liquids--or CTL--gasification, 
and for Rentech, the future of CTL in the United States is no longer a 
theoretical, what-if, conversation. We plan to have a fully commercial, 
fully operational CTL plant up and running by 2010.
    Our focus as a company is now on making clean transportation fuels 
in the U.S., from U.S. resources for U.S. consumption. We are targeting 
our commercial investments to production based on coal and petroleum 
coke (a byproduct of oil refining) feedstocks. We can locate plants 
anywhere with sufficient access to these resources, from coal-producing 
states to Hawaii (which has petroleum coke from its refinery).
Environmental Benefits
    You should also smell the product. It has none of the typical odor 
of diesel. There are two other critical differences between this and 
typical diesel. Our fuel has a shelf-life of at least 8 years, rather 
than 3-4 months for petroleum diesel--meaning that for the strategic 
reserve, for emergency first-responders, and the military, our fuel has 
incredible advantages. Next, our fuel is biodegradable. If it spills, 
it does not cause extensive or irreparable damage to waterways or 
wells.
    Let me take a moment to highlight the environmental policies that 
we intend to pursue. Rentech is committed to being environmentally 
friendly--and both our production and fuels have environmental 
benefits.
    As we manufacture our fuel, we remove most of the harmful regulated 
pollutants in the gasification stage. Sulfur and mercury come out as 
elements--they do not go up a smokestack to be scrubbed out, and do not 
leak into the environment. We are also working to reduce unregulated 
emissions, such as greenhouse gases. Our proposal for a second plant, 
to be located in Natchez, Mississippi, offers the opportunity for 100% 
carbon capture and storage. Our carbon dioxide output would be pumped 
into nearby older oil well fields, both helping to produce additional 
oil by forcing out additional supplies and trapping the carbon 
underground.
    Additionally, our fuel runs cleaner than petroleum diesel. Diesel 
itself has significant advantages over gasoline, providing greater 
power with fewer emissions--and using Rentech's diesel keeps the power 
advantage and reduces emissions even further.
Economic Challenges
    At the moment, a number of trends are converging to jump-start the 
clean fuels industry in the United States. You are all familiar with 
the recently soaring price of gas, of the very real concerns about 
America's energy dependence and energy security, and of the challenges 
posed by both the geopolitical and global environmental situations. Our 
fuel is part of the solution for each of these concerns.
    With oil prices at historic highs, our fuel is also economically 
competitive. Including the financing and development costs, we can 
produce finished fuels for $36 to $42 per barrel, the equivalent of 
buying raw crude at $30 to $35 per barrel.
    To start this industry however, you need to open the first plant in 
the U.S. Each successive plant will build on the economies of scale, 
improve on the lessons learned at previous plants, and expand the 
market. It is very capital intensive to build the industry, and one 
plant is only the start. You have to build second, third, fourth, and 
then successive plants. But, as the Governor of Montana likes to note, 
everyone wants to build the second plant. Nobody wants to finance the 
first in the U.S., even though these plants exist in several other 
countries.
    Rentech has developed a five-point strategy for commercialization, 
designed specifically to overcome the financial hurdles of getting 
started in the U.S. First, we are jump-starting the deployment of our 
proprietary Rentech process by pairing off-the-shelf gasification and 
finishing plant technologies with our Rentech Reactor. Second, we are 
aggressively pursuing multiple strategic projects in the U.S., with the 
goal of getting plants up and running at several sites very quickly.
    Third, we are developing a repeatable and scalable design that 
allows for expansion of production up to 50,000 bpd per plant that will 
provide for a very rapid expansion of the industry once the first 
plants are operational and proved out. Fourth, we are continuing to 
invest heavily in research and development, to push the optimization of 
our technologies even farther. And fifth, we are examining selected 
licensing opportunities to expand use of our process and our 
proprietary technologies.
East Dubuque, Illinois: The First Clean Fuels Production Plant in the 
        U.S.
    Our first clean fuels plant is underway right now. Last week, 
Rentech purchased a fertilizer plant in East Dubuque, Illinois, and we 
plant to convert it in phases to CTL poly-generation over the next 3 to 
4 years. By poly-generation, I mean that we will ultimately produce 3 
core products: ultra-clean transportation fuels, ammonia fertilizer and 
electricity.
    The plant currently makes ammonia fertilizer from natural gas, and 
it already incorporates basic technologies that are critical to 
successfully implementing CTL. The conversion will include changing the 
feedstock from expensive natural gas to affordable Illinois coal. In 
phase one, we will add a coal gasification unit to the fertilizer 
production line, generating syngas which is the first step in each of 
the products that will ultimately be generated.
    Fertilizer will still be made in large quantities. As I'm sure all 
of you know from our friends in the farm states, domestic fertilizer 
plants are shutting down rapidly because of high natural gas prices--
the current primary feedstock for fertilizer. Since 1999, the U.S. has 
switched from producing all its own fertilizer to becoming a net 
importer. We will demonstrate that fertilizer production can still be a 
thriving domestic industry using clean coal technologies.
    Electricity will also be produced, primarily for the plant's own 
use. A small surplus, however, will be provided to the local grid. But 
our primary focus is the production of our fuels. So in later stages of 
our first phase, we will add a Rentech Reactor and a finishing plant, 
allowing production of 1,800 bpd of our diesel. Those additions will be 
on-line and producing in 2010.
    Later, in phase two of our East Dubuque build-out, we will add a 
second gasifier. That will allow us to raise fuel production up to 
6,800 bpd. Under our timeline, the East Dubuque plant will be first 
commercial plant in the U.S. to produce marketable quantities of clean 
fuels from CTL.
Looking Ahead
    Rentech is also pursuing a second larger scale plant in Natchez, 
Mississippi--the Natchez Adams Strategic Fuels Center--which would 
produce up to 11,000 bpd in phase one. We were invited by the local 
community to consider the possibility after Hurricane Katrina when 
Mississippi ran disastrously low on diesel. At Natchez, we can use two 
feedstocks--both coal and petroleum coke, a byproduct of the local 
petroleum industry. And as I have mentioned, there is the very real 
possibility of capturing and storing 100% of the carbon dioxide 
emissions through enhanced oil recovery in nearby oil fields. To our 
knowledge, this would be the first large-scale U.S. commercial capture 
and storage of man-made carbon emissions. Carbon dioxide injection is 
already being used in this oil-producing basin, but additional supplies 
are need.
    Looking even further ahead, we are considering several development 
opportunities in various regions of the U.S., including discussions 
with coal companies to utilize a replicable, iterative plant model at 
the mouths of mines. There, we would size a basic plant model that 
could be expanded. For twenty years, Rentech has researched and 
optimized its technology. We have refined our process to make it more 
effective and more environmentally-friendly. Now we are commercializing 
it.
    Today, the U.S. produces and consumes over 2 million barrels per 
day of diesel, and many experts project demand to double in the next 
twenty years. A thriving clean fuels industry is vital to our nation's 
future, both for our energy security and our environmental 
sustainability.
What the Government Can Do
    As we launch this industry, we are planning to make full use of the 
EPACT 2005 incentives that the Congress designed to jump-start clean 
fuels. Thank you for those efforts. Let me also note that the States 
are also lending their assistance. The State of Illinois has been 
extraordinarily helpful--they helped us to complete feasibility 
studies, engineering studies and provided grants to assist with 
conversion to coal. The State of Mississippi has also been 
exceptionally supportive of the possibility of our second plant being 
located in Natchez, and they just passed a $15 million bond bill for 
the proposal.
    We are not asking the government to subsidize clean fuels. We need 
your help to create a climate where we can use private-sector funding 
to establish a fully commercial industry. There are four ways than you 
can help us jump-start the industry.
A Four-Point Plan to Jump-Start the Clean Fuels Industry
    1) Support Appropriate Investment Tax Credits. To meet our 
aggressive timeline, we will apply for the industrial gasification 
investment tax credit provided by the Energy Bill. Recent initiatives 
to raise the current $350 million cap to $850 million would help even 
more. If Congress is serious about trying to reduce our dependence on 
foreign oil import then allow me to offer an observation. Maintaining 
the current cap of $350M could slow the rollout of industrial 
gasification using coal to the point where the U.S. winds up losing 
more industry. Even an $850M cap will assist the development and 
deployment of only 3 to 4 more plants--hardly the creation of a full-
fledged industry. At $75 per barrel, the price of oil last week, the 
U.S. is paying $850 million to foreign countries for oil every two 
days. To create a real incentive, it might be better to lift the caps 
altogether. Another proposal, for an investment tax credit specific to 
clean fuels, would do even more to accelerate production
    2) Make the Fuel Excise Tax Credit Available to Clean Fuels. There 
is another way for the federal government to help, by making the 50 
cent-per-gallon fuel excise tax credit provided in the Highway Bill 
available to CTL fuels. To do that, you could extend the expiration of 
the current credit from 2009, when no CTL plants will yet be 
operational in the U.S., to at least 2014.
    3) Fully Fund and Implement the Federal Loan Guarantees. We will 
also apply for the self-pay guarantees that the Congress initiated at 
the Department of Energy (DOE). This program is absolutely vital to our 
efforts. We understand that DOE's implementation has begun and we 
commend the Department and the Secretary of Energy for quickly moving 
to implement the authorized programs. We appreciate and hope you will 
continue your efforts to ensure that both of the DOE loan programs are 
fully funded and implemented expeditiously. And,
    4) Support Military Consideration of Clean Fuels. The final idea 
for the government to help catalyze commercial deployment of the CTL 
industry is to examine usage of clean fuels for military applications. 
Long-term contracts for military use of diesel and jet fuel would 
assist greatly with private-sector financing of the first plants.
    The Energy Information Administration's AEO 2006 projected long-
term oil costs at $50 and above. The same forecast shows CTL production 
growing to 700,000 barrels per day by 2030. To get there, the first 
plants must be financed and built, paving the way for the industry to 
flourish. This 4-point combination of incentives and contracts would 
provide the initial climate and stability needed to propel private 
investment.
Conclusion
    I think the great potential of clean fuels, especially using CTL, 
is that American resources, American know-how, and American innovation 
will help create environmentally-friendly energy and sustain American 
jobs. A robust clean-fuels sector can help us meet the challenge of our 
national energy needs, foster greater energy independence, and preserve 
a full measure of our energy security. At Rentech, we are moving today 
to produce clean fuels for America's future.
    Thank you for all that you have already done to allow a jump-start 
of CTL and clean fuels in the Energy Policy Act of 2005. We intend to 
make use of your help to do just that--jump-start full scale 
utilization of CTL, and jump-start a new clean fuel manufacturing 
industry. Thank you as well for your time today.
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Mr. Ramsbottom. We 
enjoyed your testimony. It was very informative to us.
    We will turn now to Mr. John Ward from Headwaters Inc. Mr. 
Ward, thank you for taking time out of your day. The floor is 
yours. We look forward to your testimony.

          STATEMENT OF JOHN N. WARD, VICE PRESIDENT, 
        MARKETING & GOVERNMENT AFFAIRS, HEADWATERS INC.

    Mr. Ward. Thank you, Mr. Chairman, honorable Members of the 
committee. I am John Ward, Vice President of Headwaters Inc., 
on whose behalf I am testifying today. I also serve as 
President of the American Coal Council and as a member of the 
National Coal Council appointed by the Secretary of Energy.
    Headwaters is a New York Stock Exchange company that 
provides an array of energy services. We are a leading provider 
of precombustion clean coal technologies for power generation 
such as coal cleaning, upgrading and treatment. We are the 
largest manager of coal combustion products, marketing coal ash 
from more than 100 power plants across the United States.
    We have built a large construction materials manufacturing 
business and have incorporated coal ash into many of those 
products. We are currently commercializing technologies for 
upgrading heavy oil, and we are also entering the ethanol fuels 
market by constructing our first ethanol production facility in 
North Dakota using waste heat from a coal-fired power plant as 
process energy. Finally, we are active as both a technology 
provider and a project developer in the coal-to-liquid fuels 
area.
    Other witnesses will testify regarding the technologies 
associated with converting coal into liquid fuels and with the 
superior performance and environmental characteristics of the 
fuels themselves. I will focus my remarks on what it will take 
to successfully deploy these technologies in the United States. 
To do that, a little historical perspective may be helpful.
    Headwaters and its predecessors have been engaged in coal-
to-liquids technologies since the late 1940s. Our Alternative 
Fuels Group is comprised of the former research and development 
arm of Husky Oil. In the late 1940s, that group designed the 
first high temperature Fischer-Tropsch plant which produced 
7,000 barrels a day of liquid fuels in Texas from 1950 to 1955. 
It shut down when cheap oil was discovered in Saudi Arabia.
    The Arab oil embargo in 1973 reignited interest in domestic 
energy resources such as coal to be used for liquid fuels. From 
1975 to 2000, our researchers were prime developers of direct 
coal liquification technology, utilizing more than $3 billion 
worth of DOE funding. That effort culminated in the completion 
of an 1,800 barrel per day demonstration facility in Kentucky, 
but full commercial deployment of the technology was halted 
when oil prices went down.
    Today our nation finds itself in another energy crisis. Oil 
costs $75 a barrel and comes from unstable parts of the world. 
There is little spare production and refining capacity. Our 
refineries are concentrated in areas susceptible to natural 
disasters and terrorist attacks. Once again we are considering 
coal-to-liquid fuels. The question is what can we do this time 
to make sure that the technologies are fully deployed?
    To begin, considering how coal-to-liquids deployment is 
being approached in different parts of the world. In China, the 
government has already committed more than $30 billion to 
commercialization of coal gasification and liquification 
technologies.
    Headwaters has licensed its direct coal liquification 
technology to a Chinese company that is currently constructing 
a 17,000 barrel per day facility in Inner Mongolia. We have 
additional technology and licensing and feasibility studies 
underway in India, the Philippines and another Asian country. 
In all of those locations, the central government recognizes 
that they have an important role to play in stimulating the 
creation of a coal-to-liquids industry.
    Here in the United States, Headwaters is pursing 
development of coal-to-liquids projects using private sector 
financing. Here at home we are not pursuing direct coal 
liquification projects because they have not yet been 
demonstrated at a commercial scale and therefore are not likely 
to be financed in private markets.
    Even indirect coal liquification or Fischer-Tropsch 
technology of the type commercially used in South Africa for 
decades is viewed by American financial markets as new and, 
therefore, riskier technologies.
    One of the projects we are pursuing in the United States is 
located in North Dakota. The project features ample coal 
reserves, highly qualified development partners and substantial 
existing infrastructure to supply the facility. The State of 
North Dakota has been exceptionally supportive and stands ready 
to contribute significant resources to development of the 
project.
    The project's viability is by no means certain. The task of 
raising between $1 billion and $4 billion for one of America's 
first coal-to-liquids refineries is daunting, especially for a 
small company like our own.
    Headwaters does not advocate abandoning America's open and 
efficient financial markets for a centralized system like 
China's, but the United States should recognize that just 
because a technology is no longer a research project does not 
mean that the free market is ready to fully embrace it.
    If Congress desires creation of a coal-to-liquids industry 
to enhance energy security, boost economic development and 
improve environmental performance of fuels, then Congress must 
help industry overcome the substantial risks associated with 
deploying the fuels.
    In my written testimony, Headwaters recommends five 
specific steps that are very similar to what you are hearing 
from the other witnesses as far as government support to 
catalyze this industry. Combined with support from the states 
and local communities anxious to see development or coal 
resources, these actions will help private industry bridge the 
deployment gap and establish a coal-to-liquids capability for 
our nation.
    Dollars we now send overseas to buy oil will be kept at 
home to develop American jobs utilizing American resources. We 
would expand and diversify our liquid fuels production and 
refining capacity. We would produce clean burning fuels that 
can be distributed through our existing pipelines and service 
stations to fuel our existing vehicles with no modifications to 
the engines. We would take a real and immediate step toward 
greater energy security.
    Thank you for your interest.
    [The prepared statement of Mr. Ward follows:]

        Statement of John N. Ward, Vice President, Marketing & 
              Government Affairs, Headwaters Incorporated

    Thank you Mr. Chairman. Honorable Members of the Committee, I am 
John Ward, Vice President of Headwaters Incorporated, on whose behalf I 
am testifying today. I also serve as President of the American Coal 
Council and as a member of the National Coal Council as appointed by 
the Secretary of Energy.
    Headwaters Incorporated is a New York Stock Exchange company that 
provides an array of energy services. We are a leading provider of pre-
combustion clean coal technologies for power generation, including coal 
cleaning, upgrading and treatment. We are the Nation's largest manager 
of coal combustion products, marketing coal ash from more than 100 
power plants nationwide. We have built a large construction materials 
manufacturing business and incorporated coal ash in many of our 
products. We are currently commercializing technologies for upgrading 
heavy oil and we are entering the ethanol fuels market by constructing 
our first ethanol production facility in North Dakota. And we are 
active as both a technology provider and a project developer in the 
field of coal-to-liquid fuels.
    Other witnesses will testify regarding the technologies associated 
with converting coal into liquid transportation fuels and the superior 
performance and environmental characteristics of the fuels themselves. 
I will focus my remarks on what it will take to successfully deploy 
these technologies in the United States. To do that, a historical 
perspective may be helpful.
    Headwaters and its predecessors have been engaged in coal-to-
liquids technologies since the late 1940s. Our alternative fuels 
division is comprised of the former research and development arm of 
Husky Oil and holds approximately two dozen patents and patents pending 
related to coal-to-liquids technologies.
    In the late 1940s, this group designed the first high temperature 
Fischer Tropsch conversion plant which operated from 1950 to 1955 in 
Brownsville, Texas. It produced liquid fuels commercially at a rate of 
7,000 barrels per day. Why did it shut down? The discovery of oil in 
Saudi Arabia.
    The Arab oil embargo of 1973 reignited interest in using domestic 
energy resources such as coal for producing transportation fuels. From 
1975 to 2000, our researchers were prime developers of direct coal 
liquefaction technology. This effort, which received more than $3 
billion of federal research funding, led to the completion of an1,800 
barrel per day demonstration plant in Catlettsburg, Kentucky. Why did 
deployment activities cease there? OPEC drove oil prices to lows that 
left new technologies unable to enter the market and compete.
    Today, our nation finds itself in another energy crisis. Oil costs 
$75 per barrel and comes from unstable parts of the world. There is 
little spare production and refining capacity and our refineries are 
concentrated in areas susceptible to natural disasters or terrorist 
attacks. And once again, our nation is considering coal as a source for 
liquid transportation fuels. The question is: What can we do this time 
to ensure that the technologies are fully deployed?
    To begin, consider how coal-to-liquids deployment is being 
approached in different parts of the world.
    In China, the government has already committed more than $30 
billion to commercialization of coal gasification and liquefaction 
technologies. Headwaters has licensed its direct coal liquefaction 
technology to a Chinese company that is currently constructing a 17,000 
barrel per day facility in Inner Mongolia. We have additional 
technology licensing and feasibility study activities under way in 
India, the Philippines, and another Asian country. In all of those 
locations, the central governments recognize that they have an 
important role to play in stimulating the creation of a new coal-to-
liquids industry.
    In the United States, Headwaters is pursuing development of coal-
to-liquids projects using private sector financing. Here at home, we 
are not pursuing direct coal liquefaction projects because they have 
not yet been demonstrated at commercial scale and therefore are not 
likely to be financed in private markets. Even indirect coal 
liquefaction technology of the type used commercially in South Africa 
for decades is viewed by American financial markets as ``new,'' and 
therefore riskier, technology.
    One of the projects we are pursuing in the United States is located 
in North Dakota. The project features ample coal reserves, highly 
qualified development partners, and substantial existing infrastructure 
to support the facility. The State of North Dakota has been 
exceptionally supportive and stands ready to contribute significant 
resources to the development of the project. But the project's 
viability is by no means certain. The task of raising between $1 
billion and $4 billion to build one of the first American coal-to-
liquids refineries is daunting--especially for smaller companies like 
ours.
    Headwaters does not advocate abandoning America's open and 
efficient financial markets for a centralized system like China's. But 
the United States should recognize that just because a technology is no 
longer a research project does not mean that the free market is ready 
to fully embrace it.
    If Congress desires creation of a coal-to-liquids industry to 
enhance energy security, boost domestic economic development, and 
improve environmental performance of fuels, then Congress must help 
industry overcome the substantial risks associated with deploying the 
first plants.
    Headwaters recommends five specific federal actions to help 
overcome deployment barriers:
    1.  Provide funding, through non-recourse loans or grants, for 
Front End Engineering and Design (FEED) activities. These activities 
are necessary to define projects sufficiently to seek project financing 
in the private sector. FEED for a billion dollar project can cost 
upwards of $50 million.
    2.  Provide markets for the fuel produced by the first coal-to-
liquids plants. Federal agencies like the Department of Defense are 
major consumers of liquid fuels. By agreeing to purchase coal derived 
fuels at market value, but not lower than a prescribed minimum price, 
the government can remove the risk of reductions in oil prices that 
could stop development of this industry.
    3.  Extend excise tax credit treatment for coal derived fuels. Last 
year's Transportation Bill extended to coal-derived fuels the 
approximately 50 cents per gallon excise tax credit that was originally 
created as an incentive for ethanol production. But the provision as 
now enacted will expire before any coal-to-liquids facilities could be 
placed in service.
    4.  Appropriate funds for loan guarantees authorized in the Energy 
Policy Act of 2005 and ensure that those funds are made available to 
coal-to-liquids projects.
    5.  Ensure that industrial gasification tax credits authorized in 
the Energy Policy Act of 2005 are also extended to coal-to-liquids 
projects.
    Combined with support from states and local communities anxious to 
see development of coal resources, these actions would help private 
industry bridge the deployment gap and establish a coal-to-liquids 
capability for our nation. Some of the dollars we now send overseas to 
buy oil would be kept at home to develop American jobs utilizing 
American energy resources. We would expand and diversify our liquid 
fuels production and refining capacity. We would produce clean-burning 
fuels that can be distributed through our existing pipelines and 
service stations to fuel our existing vehicles with no modifications to 
their engines. We would take a real and immediate step toward greater 
energy security.
    Thank you for your interest. I would be happy to answer any 
questions.
                                 ______
                                 
    Mr. Gibbons. Mr. Ward, thank you very much for your 
testimony, and thank you for what you are doing to help us 
solve the energy problems not only here in America, but around 
the globe as well.
    We will turn now to Mr. Robert Kelly, DKRW Energy. Mr. 
Kelly, if you want to help me understand the acronym DKRW, you 
are more than welcome to help me. The floor is yours. I look 
forward to your testimony.

            STATEMENT OF ROBERT C. KELLY, PARTNER, 
                        DKRW ENERGY, LLC

    Mr. Kelly. Mr. Chairman, it is the initials of the four 
founding partners. I am the K, so that is a head start.
    Mr. Gibbons. I assumed that was part of it, but that is all 
right.
    Mr. Kelly. Thank you, Mr. Chairman, distinguished Members 
and guests. I am Bob Kelly, a partner of DKRW Energy, LLC. We 
are a private held, Houston-based energy company currently 
developing one of the first major coal-to-liquids facilities in 
the United States in Medicine Bow, Wyoming.
    As the President outlined in the State of the Union 
Address, we are facing a serious energy crisis in the U.S. as 
our domestic production of oil declines and our domestic demand 
continues to grow. We believe that CTL technology can have a 
major impact in helping to meet the future demand for energy in 
the U.S. in an environmentally acceptable way.
    Our company's objective over the next 10 years is to 
finance and build CTL facilities in the U.S. totaling 110,000 
barrels per day of capacity. Over a 30 year period, these 
facilities can produce over 1.2 billion barrels of liquid 
transport fuels from domestic U.S. coal reserves.
    We believe that our efforts, along with those of others in 
our industry, are vital to achieving U.S. energy independence 
and to keeping the price of fuels in the U.S. at reasonable 
levels for American consumers.
    We have spent the last three years developing the Medicine 
Bow CTL project into what we believe will be one of the first 
major commercial coal-to-liquids facilities in the U.S. The 
initial phase of the project is designed to produce 11,000 
barrels per day of ultra low sulfur diesel and naphtha 
transportation fuels.
    The CTL technology, as others have said here, we employ at 
Medicine Bow is not new. The process was used by the Germans. 
It is currently used by the South Africans to produce liquid 
fuels.
    The technology involves basically two key steps. In the 
first step, coal is converted in the gasification process to a 
synthetic gas. In the second step, the cleaned up synthetic 
gas, a mixture of hydrogen and carbon monoxide, is passed 
through a reactor in what is called a Fischer-Tropsch reaction 
to produce diesel fuel and naphtha.
    The key commercial elements of the Medicine Bow project 
include the following: We have an agreement with Arch Coal, one 
of the largest coal producers in the U.S., to acquire the 
Carbon Basin Coal Reserve. This reserve, currently owned by 
Arch, contains approximately 180 million tons of bituminous 
coal.
    We have an agreement with General Electric to enable the 
project to use the General Electric coal gasification 
technology. We have an agreement with Rentech to utilize the 
Rentech Fischer-Tropsch technology. As Hunt said, the Rentech 
technology employs an iron based catalyst similar to that used 
by Sasol to produce liquid hydrocarbons from coal.
    We have a preliminary agreement to sell all of the output 
of the facility over a multi-year period at market prices to a 
major refiner and marketer of diesel and naphtha in the Rocky 
Mountain region. These markets are currently importing liquid 
petroleum products from the U.S. Gulf coast, so this project 
will have a direct impact on reducing U.S. petroleum imports.
    Finally, we have a preliminary agreement with an oil and 
gas production company to sell all of the liquid carbon dioxide 
produced by the project. The carbon dioxide will be reinjected 
into the ground into oil wells to increase their productive 
capacity and thus effectively sequestering the CO2.
    What can Congress do? The cost of the Medicine Bow project 
will be approximately $1.4 billion. We plan to complete the 
financing for the project in 2007. While we believe the equity 
side of the capital markets is prepared to participate in new 
CTL ventures, the unfamiliarity of major banks and EPC 
contractors with Fischer-Tropsch technology will initially make 
the project debt financing a challenge.
    We therefore intend to immediately seek DOE loan guarantees 
as provided for in the EPACT 2005 legislation for the project. 
We urge the Department of Energy and the Secretary of Energy to 
move quickly to implement this program already authorized in 
the energy bill.
    We do not believe these loan guarantees need to be an 
ongoing program. After the first few project financings are 
complete the project debt market will stand ready to finance 
well-developed projects like Medicine Bow without loan 
guarantees.
    We will also apply for the industrial gasification 
investment tax credit provided by the energy bill. We do 
believe, however, that the cap imposed in EPACT 2005 on the ITC 
should be removed altogether in favor of a time deadline such 
as 2015.
    Another key incentive we believe Congress should consider 
and has been mentioned by some of the other participants is 
making the 50 cent per gallon fuel excise tax credit provided 
in the highway bill available to CTL fuels. To do that you 
could extend the expiration of the current credit from 2009 
when no CTL plants will yet be operational in the U.S. to 2015.
    Finally, we think Congress should consider Federal 
environmental eminent domain legislation to assist in the 
developing of transportation corridors for pipelines carrying 
these fuels and pipelines carrying CO2.
    In conclusion, in the 2006 Annual Energy Outlook the 
Department of Energy estimated the CTL industry could produce 
between 800,000 and 1.7 million barrels per day of transport 
fuels by 2030. I think this is a reasonable estimate.
    We are committed to making this forecast a reality. We 
appreciate the help that Congress can give us. Thank you very 
much.
    [The prepared statement of Mr. Kelly follows:]

         Statement of Robert C. Kelly, Partner, DKRW Energy LLC

    Thank you, Mr. Chairman, Distinguished Members and guests. I am Bob 
Kelly, a partner of DKRW Energy LLC. We are a privately held, Houston-
based energy company currently developing one of the first major coal-
to-liquids (``CTL'') facilities in the United States at Medicine Bow, 
Wyoming.
    As the President outlined in the State of the Union Address, we are 
facing a serious energy crisis in the United States as our domestic 
production of oil declines and our domestic demand continues to grow.
    We believe that CTL technology can have a major impact in helping 
to meet the future demand for energy in the United States in an 
environmentally acceptable way.
    Our company's objective, over the next ten years, is to finance and 
build CTL facilities in the United States totaling 110,000 barrels per 
day of capacity. Over a thirty year period, these facilities can 
produce over 1.2 billion barrels of liquid transport fuels from 
domestic U.S. coal reserves. We believe that our efforts, along with 
those of others in our industry, are vital to achieving U.S. energy 
independence and to keeping the price of fuels in the U.S. at 
reasonable levels for American consumers.
The Medicine Bow Project
    We have spent the last three years developing the Medicine Bow CTL 
project into what we believe will be one of the first major commercial 
coal-to-liquids facilities in the U.S. The initial phase of the project 
is designed to produce 11,000 barrels per day of ultra low sulfur 
diesel and naphtha transportation fuels.
    The CTL technology we will employ at Medicine Bow is not new. The 
process was developed by German scientists in the early 1900s, was used 
in Germany during World War II to fuel their war economy, and is used 
today in South Africa to produce over 150,000 barrels per day of liquid 
transportation fuels.
    The technology basically involves two key steps. In the first step, 
coal is converted in the gasification process to a synthetic gas. In 
the second step, the cleaned up synthetic gas, a mixture of hydrogen 
and carbon monoxide, is passed through a reactor, in what is called a 
Fischer Tropsch reaction, to produces diesel fuel and naphtha.
    The key commercial elements of the Medicine Bow project include the 
following:
      We have an agreement with Arch Coal, one of the largest 
coal producers in the U.S., to acquire the Carbon Basin coal reserve. 
This reserve, currently owned by Arch, contains approximately 180mm 
tons of bituminous coal.
      We have an agreement with General Electric to enable the 
project to use the General Electric coal gasification technology.
      We have an agreement with Rentech to utilize the Rentech 
Fischer Tropsch technology. The Rentech technology employs an iron 
based catalyst, similar to that used by Sasol, to produce liquid 
hydrocarbons from coal.
      We have a preliminary agreement to sell all of the output 
of the facility over a multi-year period at market prices to a major 
refiner and marketer of diesel and naphtha in the Rocky Mountain 
region. These markets are currently importing liquid petroleum products 
from the U.S. Gulf Coast so this project will have a direct impact on 
reducing U.S. petroleum imports.
      Finally, we have a preliminary agreement with an oil and 
gas production company to sell all of the liquid carbon dioxide 
produced by the project. The carbon dioxide will be re-injected into 
the ground into oil wells to increase their productive capacity, thus 
effectively sequestering the CO2
What Congress Can Do
    The cost of the Medicine Bow CTL project will be approximately $1.4 
billion dollars. We plan to complete the financing for the project in 
2007. While we believe the equity side of the capital markets is 
prepared to participate in new CTL ventures, the unfamiliarity of major 
banks and EPC contractors with Fischer Tropsch technology will 
initially make project debt financing a challenge.
    We therefore intend to immediately seek DOE loan guarantees as 
provided for in the EPACT 2005 legislation for the project. We urge the 
Department of Energy and the Secretary of Energy to move quickly to 
implement this program already authorized in the Energy Bill.
    We do not believe that these loan guarantees need to be an ongoing 
program. After the first few project financings are complete the 
project debt market will stand ready to finance well developed projects 
like Medicine Bow without loan guarantees.
    We also will apply for the industrial gasification investment tax 
credit (``ITC'') provided by the Energy Bill. We do believe, however, 
that the cap imposed in EPACT 2005 on the ITC should be removed 
altogether in favor of a time deadline such as 2015.
    Another key incentive we believe Congress should consider is making 
the 50 cent-per-gallon fuel excise tax credit provided in the Highway 
Bill available to CTL fuels. To do that, you could extend the 
expiration of the current credit from 2009, when no CTL plants will yet 
be operational in the U.S. to 2015.
    Finally, we think Congress should consider Federal eminent domain 
legislation to assist in developing transportation corridors for 
pipelines carrying these fuels and CO2 so that these 
products can get to market without significant delay due to right of 
way restrictions.
Conclusion
    In the 2006 Annual Energy Outlook, the Department of Energy 
estimated that the CTL industry, given today's oil price outlook, could 
produce from 800,000 to 1,700,000 barrels per day of CTL transport 
fuels by 2030. I think this is a reasonable estimate.
    DKRW is committed to helping make this forecast a reality. In 
addition to the Medicine Bow project, we have other projects in 
development in Montana and Illinois as well as in Wyoming.
    We appreciate the efforts in Congress, in particular those of 
Representative Cubin and other members of the Wyoming congressional 
delegation in the Senate, as well as the state governmental officials 
in Wyoming and at the U.S. Department of Energy in looking at ways to 
get this project and this industry moving. Every one in the room 
understands the risks involved and what is at stake. Our economy, 
foreign policy, and national security are vitally affected by what you 
will do here. Thank you for supporting our efforts and for giving me 
the opportunity to provide you with my views.
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Mr. Kelly. I appreciate 
you being here, and thank you for what you are doing in helping 
solve our country's energy needs as well.
    We turn now to Garry Anselmo and Silverado Green Fuels. Mr. 
Anselmo, welcome. The floor is yours.

              STATEMENT OF GARRY L. ANSELMO, CEO, 
                   SILVERADO GREEN FUEL, INC.

    Mr. Anselmo. Thank you, Mr. Chairman and Members of this 
committee. I am Garry Anselmo, and I am Chairman and CEO of 
Silverado Green Fuel, Inc., a publicly held----
    Mr. Gibbons. Mr. Anselmo, is your mike on? You may have to 
pull it closer to you.
    Mr. Anselmo. Thank you. Thank you, Mr. Chairman. Garry 
Anselmo, Chairman and CEO of Silverado Green Fuel, Inc., a 
publicly held company headquartered in Fairbanks, Alaska. I 
appreciate the opportunity to share with you today the vision 
that Silverado has for the use of America's sub-bituminous and 
lignitic coals.
    As you know, proven U.S. coal reserves are greater than all 
of the world's gas or oil reserves. U.S. coal reserves are 
capable of fueling America's growing economy for hundreds of 
years. Because nearly half of the U.S. coal reserves are either 
sub-bituminous or lignitic coal, unlocking the fuel energy 
potential of these inexpensive coal reserves is one of the 
critical keys to solving America's developing energy crisis.
    High moisture content has been the major obstacle of the 
widespread use of sub-bituminous and lignite, often referred to 
as low-rank coals. Over the past 40 years, low-rank coal 
researchers around the world have investigated virtually every 
coal drying technique conceived. Of all the low-rank coal 
drying technologies assessed, hydrothermal treatment is the 
only process that produces a liquid fuel with the inherent 
benefits of liquid handling, transportation and storage. A 
primary liquid fuel is a strategic fuel.
    Silverado Green Fuel, Inc. is fortunate to have on staff 
Dr. Warrack Wilson, a world-renowned scientist and developer of 
the hydrothermal treatment process. This treatment is an 
advanced technology that features a process of moderate 
temperature and pressure and non-evaporative drying that can 
irreversibly remove much of the moisture from low-rank coal. 
Low-rank coal water fuel or LRCW fuel is a non-hazardous, 
easily transportable liquid fuel.
    In a joint research project supported by the U.S. 
Department of Energy and the Alaska Science and Technology 
Foundation, test quantities of LRCW fuel were produced from 
Alaska's Beluga coal in a pilot plant and burned in a test 
boiler. The Beluga LRCW fuel proved to be an excellent fuel, 
having less than four percent ash and only .07 percent sulfur. 
Other low-ranked coals from around the United States have been 
shown by bench scale testing to be good candidates for 
processing into LRCW fuel.
    Mr. Chairman, I had a movie to show, but we have no sound 
here today so I have one picture to show you of the fuel 
itself. It will come up here in a moment. I will talk in the 
meantime. If it does not come up, that is fine too.
    The fuel looks like oil. It pours like oil. It ships and 
stores in existing oil facilities and is a non-toxic, non-
hazardous, non-flammable, environmentally friendly fuel. Our 
projected production costs in Alaska for sub-bituminous is $15 
per barrel. In Mississippi, Texas, Louisiana, Alabama and 
Georgia, lignite, $11 per barrel. In Montana, Wyoming, $10 per 
barrel. Understand that it takes 2.2 barrels of our fuel to 
give off as much energy as it does one barrel of oil.
    Presently low-ranked coals are lower energy, costly 
shipping because they contain 25 to 40 percent water, i.e., 
every 100 train cars are 25 to 40 cars of water.
    At the mine site we crush, grind, hydrothermally treat, 
pressure cook at 285 degrees Centigrade and 1,500 pounds per 
square inch at gravity or sea level. This liberates the water 
from the particle and the CO2 and cetanes.
    While it is in the hot aqueous phase, the particle also 
exudes its resins or waxy substances, and they tend to stay 
attached to the particle as they are hydrophobic. They do not 
want to attach to water. They attach to the particle.
    As the solution cools, they coat the particle, fill the 
pores on the particles and do not let the water back in. The 
particle is now dehydrated. We then separate the particles from 
the solution and set them aside. The solution, however, is 
hydrocarbon rich. It also contains CO2 and heavy 
metals.
    The CO2 may be removed and sold today to oil 
companies who are repressuring their fields with CO2 
where this greenhouse gas remains sequestered in the ground. 
The heavy metals may also be extracted.
    The hydrocarbon rich waters are added back to the 
particles, and this is the LRCW fuel. We make it up to shipping 
grade, and at the other end on burning we can make up water for 
burning grade, thereby reducing shipping costs.
    Shipping and storage can be done in existing oil 
facilities. If a pipeline ruptures you have water and coal 
particles, which may be picked up and reconstituted. If a ship 
ruptures, as they do, you end up with water and a substrate on 
the ocean floor that is conducive to plant growth. Whether at 
home or a theater of war, our fuel, if ruptured, will flow and 
put out the fire. Lives will be saved.
    On the use of this fuel into a boiler, it must be spray 
injected into a preheated boiler with an existing flame. In 
doing so, we end up with a complete carbon burn out and a hot, 
stable flame. As the fine particles of ash stay within the 
entrainment velocity, there is minimal agglomeration or fouling 
of boilers.
    As the ash escapes with the flue gases, the ash is taken 
out with bag houses, electrostatic precipitators. Sulfur 
dioxides are removed with water scrubbing systems, later 
treatment. Ergo, we have a low-cost, environmentally friendly 
fuel.
    As you can see, LRCW fuel offers the least expensive route 
and is the perfect feedstock to make a value added liquid fuel 
from America's most abundant and lowest cost fossil fuel.
    In addition, boilers. LRCWF can be used in General Electric 
gasifiers to produce synthesis gas for integrated gasification 
combined cycle power generation and synthesis of clean fuels, 
ultraclean fuels, including synthetic diesel, gasoline and jet 
fuels, rocket fuel, plastics, explosives, fertilizers, urea and 
other downstream products.
    In summary, our research shows us that the United States 
consumes approximately 18 million barrels of oil per day or 6.5 
billion barrels per year at a current cost in excess of $400 
billion a year.
    This country is indeed blessed as it contains fully 25 
percent of the world's coal reserves, more than all of the oil 
or all of the gas in the world. At a guesstimate, we could be 
wholly energy self-sufficient in a low-cost, environmentally 
friendly manner in 25 to 30 years at a cost of some $3 
trillion. The first commercial production facility could begin 
production of LRCW fuel in five years or less, and we can cut 
our gasoline prices in half.
    Three major obstacles to successful, large-scale liquid 
fuel production is steel shortages--we need to ramp up our iron 
and nickel production; relevant equipment shortages--we need to 
increase our manufacturing; and the permitting process. Reduced 
time and increased productivity.
    Mr. Chairman and committee Members, thank you for this 
opportunity to testify, and I look forward to answering any 
questions you may have.
    [The prepared statement of Mr. Anselmo follows:]

        Statement of Garry L. Anselmo, Chief Executive Officer, 
                       Silverado Green Fuel, Inc.

Low-Rank Coal-Water Fuel Commercial Demonstration
Coal: America's Only Strategic Fuel
    Of all the world's fossil energy reserves, coal is by far the most 
plentiful. The energy represented by the known reserves of oil are only 
a small fraction of its coal reserves. Few would disagree that the 
ascent of the United States to the world's most powerful and affluent 
nation was made possible to a large degree by inexpensive energy 
(especially electrical power.) Proven U.S. coal reserves are greater 
than all of the world's gas or oil reserves. U.S. coal reserves are 
capable of fueling America's growing economy for hundreds of years, 
whereas many experts predict America's oil and gas reserves will be 
exhausted in a few decades. Domestic production of petroleum accounts 
for only 40% of America's annual usage, requiring imports of a massive 
60%, much of it from countries with unstable or unfriendly governments. 
Thus, in the 21st century coal will remain a key energy resource, and 
must therefore be used in an environmentally and economically 
responsible manner. Although coal is the only U.S. energy resource 
abundant enough to be a strategic fuel, to maximize its potential it 
must also be made available in a liquid form for advanced combustion 
applications. Nearly half the U.S. coal reserves are either sub-
bituminous or lignite. Unlocking the full energy potential of these 
inexpensive sub-bituminous and lignite coal reserves is one of the 
critical keys to solving America's developing energy crisis. This 
synopsis outlines the process whereby the U.S. can utilize a new 
technology to unlock the full energy potential of half of its coal 
reserves.
Coal's Poor Public Image
    It is no surprise that coal is generally viewed as a ``dirty'' fuel 
given decades of poor coal mining practices, dust generated during 
handling and shipping, large unsightly coal stockpiles, and coal 
burning and coke production without emission controls. Despite many 
improvements (such as extensive mine land reclamation programs, 
advances in emission controls, and development of clean coal 
technologies) public perception has changed little.
    Why is oil not viewed as a dirty fuel? The answer is simple: oil is 
used sight unseen.
    Coal spilled in water is non-toxic and non-hazardous. It will 
settle to the ocean floor and form a carbonaceous substrate for marine 
growth. So why is it that coal is considered dirty, even though coal 
spilled in water is non-toxic and non-hazardous? Unlike oil, usage of 
coal is a highly visible and unsightly process. Americans regularly see 
massive trucks hauling coal to stockpiles, hundred-car trains hauling 
coal to ports for distribution or to utilities, and enormous stockpiles 
at coal-fired utilities. If, however, coal could be used sight unseen 
in today's modern utilities, public perception of coal as a dirty fuel 
would change. The Low-Rank Coal-Water Fuel (LRCWF) Project is designed 
to demonstrate the economic feasibility and environmental superiority 
of LRCWF as a low-cost alternative to oil while creating a coal fuel 
that can be used sight unseen.
Comparison of High and Low-Rank Coals
    Almost half of the world's estimated coal resources, including 
those of the U.S., are low-rank coals (LRC), which are sub-bituminous, 
lignitic, and brown coals. The mine-mouth price for Low Rank Coal is 
typically less than half that of bituminous steam coal. The price 
advantage in favor of LRC has been offset by higher transportation 
costs to distant markets due to LRC's high moisture content and 
consequently low energy content, which until now limited most LRC use 
to mine-mouth power generation.
    When the U.S. air emission standards (which drastically reduced 
sulfur emissions) were first promulgated in 1970, utilities were faced 
with the decision to switch to low-sulfur coals or to add sulfur 
capture devices. Even more stringent new standards enacted in 1987 and 
1990 have led to widespread switching from high-sulfur eastern 
bituminous coals to low-sulfur LRC. For example, in 2004 the amount of 
LRC mined in Wyoming's Powder River Basin reached nearly 400 million 
metric tons.
    In terms of utilization, LRC is non-agglomerating and has more 
volatiles, providing faster ignition and virtually complete carbon 
burnout. Thus, from a power generation perspective, LRC offers the 
potential for higher efficiencies in both conventional boilers and 
advanced combustion and gasification systems. Many LRCs also have low 
sulfur contents, ranging from less than 0.2% to 1%. Low mining costs, 
high reactivity, and low sulfur content would make these coals premium 
fuels were it not for their high moisture levels, which range from 25% 
for sub-bituminous coal to nearly 40% for some lignites. Many major 
coal users mistakenly perceive high-moisture coal to be of inferior 
quality and overlook the many positive features of LRC.
Coal-Water Fuels
    Coal-water fuels were developed in response to the oil crises of 
the 1970s and early 1980s and led to a new industry that produced a 
low-cost alternative to imported oil. Today's coal-water fuel (CWF) 
industry uses expensive bituminous coals that are formulated with 
water, using costly proprietary additives, to produce dense CWF. Due to 
its low inherent moisture, bituminous coal can be used directly without 
moisture reduction to prepare Coal Water Fuel; however, since 
bituminous coal is hydrophobic, it tends to settle rapidly. Because of 
its settling tendencies and high viscosity in water, bituminous CWF 
requires costly additives to reduce viscosity and provide stability. 
The high cost of bituminous coal and required additives coupled with 
the oil glut in the 1990s led to decreased interest in CWF in North 
America. Canada, the world leader in CWF technology in the 1980s, has 
no CWF producers today; however, Japan, which must import all its oil 
and is concerned about the security of oil suppliers, has developed a 
commercial bituminous CWF industry.
    Burning Coal-Water Fuel (CWF) is essentially burning bituminous 
coal with its inherent strengths and weaknesses. Most work on 
bituminous CWF production in North America focused on increasing the 
solids content and improving viscosity; little attention was paid to 
the combustion characteristics. Consequently, the initial tests with 
CWF were plagued by poor atomization, particle agglomeration, and 
incomplete combustion. Because most bituminous coals swell and go 
through a plastic state when heated, they tend to agglomerate, 
producing particles many times larger than the initial feed. Ash 
coatings form around the unburned carbon and the agglomerated particles 
burn slower and not as well as single particles. Agglomerates also lead 
to erosion problems in the convective sections of boilers and to a 
significant ``boiler derating''; however, after the Department of 
Energy and Japanese CWF developers spent millions of dollars developing 
new atomizers for bituminous CWF, tests in large oil-fired boilers that 
employed relatively long residence times achieved acceptable carbon 
burnout and launched the CWF industry.
    (NOTE: Boiler derating is a value that quantifies how well a 
replacement fuel performs in providing the same energy as the original 
fuel. For example, if the maximum amount of replacement fuel that can 
be used in an oil-fired boiler provides 75% of the energy that the 
original oil does, then the replacement fuel has a 25% derating. 
Obviously, low derating numbers indicate better substitute fuels. 
Derating is based on combustion-related characteristics such as the 
speed of ignition, completeness of carbon burnout, particle size and 
agglomeration, etc.)
The Search for a Low-Rank Coal Utilization Technology
    High moisture content has been the major obstacle to the wide-
spread use of Low Rank Coals. Over the last 40 years LRC researchers 
around the world have investigated virtually every low-rank coal drying 
technology conceived. The driving force behind this research was the 
desire to develop an economical drying method that would produce a dry 
and stable LRC that could withstand the rigors of shipping and compete 
with bituminous steam coal. Any LRC can be dried to virtually 0% 
moisture using hot flue gases to evaporate the coal moisture. These 
processes cost the least due to the low temperatures used, and are 
preferred if the dried product is for immediate use; however, 
evaporative drying temperatures are too low to cause permanent changes 
in the coal structure. As a result, evaporative-dried LRC behaves like 
a sponge, reabsorbing lost moisture when exposed to humidity or water. 
Another drawback to evaporative-dried LRC is that it is more friable 
than raw LRC, rapidly degrading into dust, and thus making it more 
susceptible to spontaneous combustion and even explosion.
The Breakthrough: Hydrothermal Treatment
    Of all the low-rank coal drying technologies assessed, Hydrothermal 
Treatment (HT) is the most promising. All other low-rank coal-drying 
processes are designed to produce a dried low-rank coal. In contrast, 
the HT process produces a liquid fuel with inherent benefits of liquid 
handling, transportation, and storage and also eliminates the stability 
problems that have plagued the traditional use of dry LRC. Hydrothermal 
Treatment is an advanced technology that features a process of moderate 
temperature and pressure non-evaporative drying that irreversibly 
removes much of the moisture from Low Rank Coal. The HT process is 
particularly effective for producing a concentrated low-rank coal-water 
fuel suitable for many liquid fuel applications. Hydrothermal Treatment 
allows LRCWF to be produced that has a solids content rivaling those 
obtained with bituminous coal-water fuels. Unlike bituminous CWF, which 
requires the use of costly additives, LRC characteristics retained 
during HT make additives unnecessary. LRCWF is a non-hazardous, easily 
transportable liquid fuel that avoids the dust-generation and 
spontaneous combustion problems associated with LRC handling, storage, 
and transportation.
    In comparison to bituminous coals, LRC has clearly superior 
combustion characteristics Bituminous coal agglomerates into larger and 
slower burning particles when heated. In contrast, LRC has more 
volatile matter and when heated blows apart into smaller fragments, 
exposing tremendous surface areas, which leads to superior combustion. 
These LRC properties lead to rapid ignition and nearly complete carbon 
burnout. In addition, much of the mineral matter (ash) in LRC is 
inherent. It is molecular in size and bonded to the organic structure 
of LRC or exists as minute grains of minerals finely dispersed through-
out the coal. This mineral matter is so fine that it easily follows the 
hydrodynamic flow and does not impinge on the heated surfaces, thereby 
greatly reducing erosion and fouling. LRC's high reactivity, rapid 
carbon burnout, and small-sized ash ensure superior LRCWF combustion. 
In all reported combustion tests, LRCWF always burned substantially 
better than bituminous CWF.
    In a joint research project (supported by the U.S. Department of 
Energy and the Alaska Science and Technology Foundation) test 
quantities of LRCWF were produced from Alaska's Beluga coal in a pilot 
plant and burned in a test boiler. The Beluga LRCWF proved to be an 
excellent fuel, having less than 4% ash and only 0.07% sulfur. Carbon 
burnout rated ``excellent:'' at over 99.8%. Gaseous emissions monitored 
during the test registered extremely low levels of SO2 in 
the flue gas and reduced NOx (Nitrogen Oxides) compared to 
burning the coal in its raw form. Likewise, substantially less LRCWF 
ash deposition was created compared to burning the parent coal. 
Further, the LRCWF ash deposit was softer, which permits easy removal 
by normal soot-blowing operations. Other Low Rank Coals from around the 
United States have been shown by bench-scale testing to be good 
candidates for processing into LRCWF.
    The technical feasibility of HT has been demonstrated in small 
pilot plants in Australia, Japan, and the U.S. Over a dozen LRCs from 
the major deposits around the world have been processed. They all 
responded favorably to HT and produced LRCWF that could be burned 
without the addition of any supplemental fuel. As a general rule, the 
increase in energy density for LRCWF versus coal water slurries 
prepared from untreated coals are 30% for sub-bituminous coals, about 
50% for lignites, and well over 100% for brown coals, peat, and 
biomass.
Low-Rank Coal-Water Fuel's Environmental Premium
    For a product to compete successfully with petroleum-derived fuels, 
it is not enough merely to be priced lower. Other advantages must be 
offered for users to consider switching to a new fuel. LRCWF has many 
important environmental advantages associated with its production and 
use. One of LRCWF's most important environmental attributes is its non-
hazardous nature in the event of spills. This property alone will be a 
significant factor in the acceptance of LRCWF as a replacement for fuel 
oil. Another advantageous attribute of LRCWF made from sub-bituminous 
coal and lignite is its relatively low-sulfur content. As U.S. utility 
companies strive to comply with new clean air regulations, they are 
faced with the decision of either adding expensive sulfur emission 
clean up equipment or switching to lower sulfur fuels. Finally, when 
LRCWF is burned, its inherent water moderates combustion temperatures 
and eliminates hot spots, thereby reducing thermal NOx.
    In comparison to using raw LRC, LRCWF provides the opportunity to 
economically recover CO2 (carbon dioxide) and reduce 
greenhouse gas emissions. CO2 emitted during combustion is 
only a fraction of the flue gas, due to N2 dilution from 
combustion air. Carbon in the coal that exists as oxygenated species 
contributes little or nothing to coal's energy content but adds to the 
amount of CO2 released during combustion. During 
Hydrothermal Treatment much of the oxygenated carbon species are 
released as CO2. Since this off-gas stream typically 
consists of over 95% CO2, it can be recovered far more 
easily and inexpensively at this phase of the HT process than as 
CO2 from exhaust flue gas streams, which have been greatly 
diluted by N2 in the combustion air. Since many likely LRCWF 
production sites are near oil fields, the recovered CO2 may 
well have a value for use in enhanced oil recovery.
    Unprocessed LRC has a water content of approximately 25% to 40%. 
All water that is initially separated from the LRC during the 
Hydrothermal Treatment will be captured and recycled to formulate the 
liquid LRCWF. Thus, all LRCWF production plants will be zero aqueous 
discharge facilities.
Estimated Commercial Low-Rank Coal-Water Fuel Costs
    The pro forma calculations for a commercial production LRCWF plant 
located near a mine are based on a 10 million BOE per year of LRCWF. 
This number was the chosen basis in order to take advantage of 
economies of scale and to be large enough to obtain a favorable long-
term LRC purchase price agreement. This size would service the (oil-
fired) electrical industry in a meaningful manner while still providing 
enough LRCWF to feed a Texaco Gasifier for the production of jet fuel 
and a myriad of other exotic fuels and products.
Low-Rank Coal-Water Fuel Market Potential
    Low-Rank Coal-Water Fuel offers the potential to reverse the trend 
of declining U.S. coal exports while increasing employment 
opportunities by creating a value-added product from coal, the U.S.'s 
most abundant natural resource. LRCWF will permit LRC to compete in the 
more valuable oil marketplace, rather than the thermal or steam coal 
market. LRCWF could be transported by pipeline, semi-tractor trailer, 
or rail to barges for delivery to oil-burning utilities in Florida, 
other Gulf Coast states, and the Northeastern United States, or to 
maritime tankers for export. LRCWF would create new market 
opportunities without the environmental hazards associated with oil or 
bulk coal handling and transportation.
    The huge market potential for LRCWF in the Gulf Coast region alone 
can be appreciated by examining the magnitude of petroleum-derived fuel 
use in utility and industrial boilers. Florida utilities are by far the 
largest consumer of oil for power generation in the U.S. In 2001 
Florida utilities consumed over 65 million barrels of petroleum-derived 
fuels. Industrial oil use is much larger, but more difficult to 
quantify since most of it is used in the petrochemical industry. 
Nevertheless, although only 25% of the industrial oil use in Texas and 
Louisiana is for process heating and power in industry, it amounted to 
over 196 million barrels of oil in 2001.
    Another unique property of LRCWF is that it will not burn in open 
air. It is non-flammable except when injected into a preheated boiler, 
gasifier, or heat engine. Thus a tank farm of LRCWF cannot be set 
ablaze. This safety feature may be a consideration for LRCWF use in 
other applications. For example, military bases at home or abroad can 
be provided with an environmentally friendly and less expensive energy 
source for installation heating and electricity, as well as a non-
explosive fuel at base locations that might potentially be subject to 
terrorist attacks.
    Another advantage to LRCWF is that it can be transported via any of 
the thousands of miles of existing fuel-carrying pipelines throughout 
the U.S. Further, if a pipeline carrying LRCWF is ruptured, whether by 
a natural disaster or a terrorist act, it will not result in a fiery 
explosion.
Low-Rank Coal-Water Fuel Commercial Demonstration Project
    The next step in commercializing the promising Low-Rank Coal-Water 
Fuel technology is the construction and operation of a commercial 
demonstration-scale LRCWF production facility. The first nation to 
build the world's first and probably only LRCWF demo plant will be the 
industry leader and have the opportunity to test LRC from around the 
world. Silverado has formed a team of the best LRCWF experts in the 
world and has developed a design for a 120-ton per day LRCWF production 
plant that can be operated 24/7 for weeks at a time. Construction of 
the facility and conducting the entire LRCWF commercial demonstration 
project will cost approximately $26 million and require less than 36 
months to complete.
    The primary objectives of the LRCWF production and utilization 
demonstration are to:
      Validate the process on a commercial scale and develop 
scale-up parameters;
      Determine the derating when switching from oil to LRCWF 
in commercial oil-boilers;
      Accurately establish process and commercial production 
costs; and
      Produce thousands of tons of LRCWF for independent end-
user testing.
Project Expectations
    The technical feasibility of producing and utilizing a premium Low-
Rank Coal-Water Fuel made from ultra-low-sulfur Alaskan sub-bituminous 
coal following hydrothermal treatment has already been successfully 
demonstrated on a pilot plant scale. In follow-on combustion tests, 
this LRCWF produced excellent results. Fouling was minimal, carbon 
burnout was exceptional, and SOx emissions (sulfurous 
oxides) were below even the most stringent requirements. Process 
economics suggest that Low-Rank Coal-Water Fuel can be commercially 
produced from Mississippi (or other Gulf Coast states') Lignite for 
about $11 per BOE, from Alaskan Low-Rank Coal for approximately $13 per 
BOE, and from Montana/Wyoming Low-Rank Coal for approximately $10 per 
BOE.
    This demonstration project is the culmination of years of extensive 
planning and research, and the work of a world-class team of scientists 
and experts, headed by Dr. Warrack Willson, a world-renowned leader in 
the field of Low Rank Coal processing; Silverado Green Fuel, Inc. is 
absolutely confident of the success of this LRCWF Commercial 
Demonstration Project. Silverado Green Fuel, Inc. believes that this 
successful demonstration will lead to the creation of a new industry 
that produces millions of tons of Low-Rank Coal-Water Fuel from sites 
across the United States. This will provide the United States a secure 
supply of a non-hazardous, low-cost substitute for petroleum fuels used 
in industrial and utility boilers. Such a secure domestic supply will 
preclude the price volatility inherent in the oil market controlled by 
OPEC. LRCWF technology will also be available to assist developing 
nations in using their indigenous LRC in an environmentally sound 
manner.
    The Low-Rank Coal-Water Fuel Commercial Demonstration Project will 
establish the United States as the world leader in this exciting new 
industry, and provide the means to inexpensively create a high-demand, 
value-added product from America's most abundant fossil energy 
resource. The LRCWF Commercial Demonstration Project will also pave the 
way for the United States to once again become a major exporter of coal 
products and decrease our nation's dependence on imported oil.
                                 ______
                                 
                             ATTACHMENT #1
                           LRCWF APPLICATIONS

LRCWF in Oil-Designed Boilers
    The near-term commercial application for LRCWF is as a non-
hazardous, low-cost alternative to petroleum-derived fuels in oil-
designed boilers. LRC has far superior combustion characteristics in 
comparison to high-rank bituminous coal. It is non-caking: it does not 
agglomerate into larger, slower burning particles, but rather blows 
apart into thousands of smaller fragments providing tremendous surface 
areas. It also contains more volatile matter. These properties lead to 
rapid ignition and carbon burnout. In addition, much of the mineral 
matter (ash) in LRC is molecular in size and is bonded to the organic 
structure of LRC and the minute grains of minerals finely dispersed 
throughout the coal. Most of the mineral matter is so fine that it 
follows the hydrodynamic flow and does not impinge on the heated 
surfaces. These beneficial characteristics greatly reduce erosion and 
fouling.
    The physics of burning any Coal Water Fuel, and the deratings 
experienced, are governed by the parent coal combustion 
characteristics. Deratings with bituminous CWF typically range from 20% 
to 33% because of the relatively inferior combustion characteristics of 
bituminous coal. Because LRCWF retains the superior combustion 
characteristics of the parent low-rank coal, it should burn in oil-
designed boilers with minimal derating, which is one of the primary 
objectives of this demonstration project. To date, there have been no 
commercial-scale tests of LRCWF in oil-designed boilers. There has 
never been a Low-Rank Coal-Water Fuel production facility large enough 
to produce the thousands of tons of LRCWF needed for independent 
testing to establish commercial LRCWF derating statistics. Previously 
performed pilot-scale testing indicates there will be excellent 
deratings. Silverado's proposed commercial-scale demonstration project 
will provide the first such facility.
LRCWF in Direct Fired Turbines
    The oil crises of the 1970s and early 1980s prompted interest in 
the use of alternate fuels for direct-fired turbine power generation. 
This interest resulted in a NASA-sponsored coal-derived fuel combustion 
component development program. In 1982, the Department of Energy (DoE) 
became the executive agency for the program. In 1986, component 
technology development had advanced enough that DOE awarded General 
Motors's Allison Turbine Division a contract to develop a proof-of-
concept CWF-fired gas turbine engine. Allison developed a high-
temperature, high-pressure, gas turbine combustion system that 
succeeded in simultaneously controlling NOx and CO levels 
while also removing ash from the gas stream in a dry state.
    The most severe combustion tests to date with LRCWF were those run 
in GM's Allison coal-fired turbine simulator with 5,000 gallon batches 
of LRCWF made from hydrothermally treated sub-bituminous coal from the 
Powder River Basin in Wyoming. The residence time, which in oil-
designed boilers is typically measured in seconds, was reduced to 
hundreds of milliseconds in the direct-fired turbine combustor. These 
tests clearly demonstrated the superiority of LRCWF over commercial 
bituminous CWF. Carbon burnout obtained with the LRCWF was over 99% 
during all operating conditions. In contrast, carbon burnout obtained 
with commercial bituminous CWF with even much smaller particles and 
under optimum operating conditions, was typically 4-5% lower. If CWF-
fired turbine power generation becomes an option in the future, LRCWF 
will undoubtedly be the preferred fuel.
    Reduced oil and gas prices in the 1990s, and increased gas 
availability following gas price spikes, had halted direct CWF-fired 
turbine research. Recent gas and oil price increases, along with 
reduced LRCWF costs due to process improvements and tax credits, may 
rekindle interest in LRCWF-fired turbines. The Silverado Team has 
discussed possible LRCWF turbine applications in developing nations 
with International Power Systems.
LRCWF-Fired Diesel Electric Generation
    Research scientists investigated coal-water fuel diesel-electric 
generating (DEG) systems to fill a market niche for small, compact 
generating plants, i.e., 2 to 20 megawatts of electricity (MWe) for 
remote locations such as Alaska, Hawaii, and Indonesia, the 
Philippines, and other developing nations. These locations are too 
remote to be served by power transmission lines from major utilities. 
Successful demonstration of an LRCWF-DEG would provide a new coal-fired 
power plant option free from the price and availability uncertainties 
of conventional oil-fired DEG systems, while eliminating the 
environmental hazards caused by oil spills and leaks.
    A number of diesel manufacturers have conducted extensive research 
and development involving the use of CWF in slow to medium speed diesel 
engines. Work using a single-cylinder research engine established the 
feasibility of burning a micronized bituminous CWF mixed with an equal 
mass of water. At this time, however, not enough research has been done 
to definitively determine that LRCWF can be used in large-scale diesel 
engines. The commercial demonstration plant will make sufficient 
quantities of LRCWF available for research to establish its feasibility 
as a diesel fuel substitute.

LRCWF-Integrated Gasification Combined Cycle Power Generation
    By using the process of gasification, energy and/or petrochemical 
feed stocks can be generated from coal more cleanly and efficiently. 
Coal gasification also offers a better means to recover energy and 
remove gaseous pollutants (such as SOx and NOx) 
than do conventional coal-fired power plants. The Electric Power 
Research Institute (EPRI) has been instrumental in developing 
integrated gasification combined cycle (IGCC) systems that produce coal 
power more efficiently and cleanly than oil. In the IGCC system, coal 
is gasified and gas from the gasifier is fed to a direct gas-fired 
turbine. The hot exhaust from the turbine generates steam for use in a 
conventional steam turbine for additional power generation. One of 
EPRI's most notable successes was its joint development with Texaco of 
a high-pressure, entrained flow, coal-slurry fed, slagging-gasifier. 
EPRI supported the successful demonstration of the 1,000 ton per day 
Cool Water IGCC demonstration plant near Barstow, California. This Cool 
Water IGCC demonstration plant, featuring a slurry-fed Texaco gasifier, 
used western bituminous coal-water slurry.
    Texaco gasification technology is in use in a number of plants in 
the U.S. and abroad. The Tampa Electric Company's 260 MWe IGCC 
generating plant was selected during the Department of Energy's Clean 
Coal Technology Program. With conventional emission controls, the Tampa 
plant reports greater than 98% removal of SOx and a 90% 
reduction in NOx. Most of the ash is recovered as a glassy 
slag (which can be marketed as road bed material, cement additives, and 
other products.) The largest Texaco gasification installation is at Ube 
Industries petrochemical complex in Ube City, Japan.
    Utilities in the Gulf of Mexico, western, and southwestern portions 
of the United States have access to large deposits of lignite and sub-
bituminous coal, which can easily be recovered by strip mining at a 
modest cost. These LRCs, however, are high in inherent moisture, and 
their low heating value reduces their performance in slurry-fed 
gasifiers. With inherent moisture levels ranging from 25% for sub-
bituminous coals and up to 40% for lignites, the maximum dry solids 
content for a pumpable slurry was only a little over 50% for sub-
bituminous coals and even less for lignites. Low-energy content, high-
water slurries can be gasified in the Texaco gasifier, but the much 
higher oxygen demand made their use uneconomical in comparison to 
highly concentrated bituminous CWS.
    Consequently the EPRI supported research for upgrading the LRC and 
increasing the dry solids content to make utilization in slurry-fed 
gasifiers a more viable operation for electric power generation for all 
ranks of coal. Hydrothermal Treatment was shown to be the most 
effective method to convert LRCs into LRCWF with high enough solids 
content to permit its efficient use in slurry fed gasifiers. All that 
remains for commercial Texaco LRCWF applications is for an LRCWF 
demonstration facility to provide commercial-scale process economics 
and produce several thousand tons for testing at commercial Texaco 
installations. During the project definition phase the Silverado Team 
will renew discussions with EPRI, Tampa Electric, and Ube Industries, 
Japan, regarding commercial-scale LRCWF tests in their facilities.
Military uses for LRCWF
    Another potential use for LRCWF involves the U.S. military. In 
addition to its obvious use as a low cost petroleum substitute for 
industrial boilers on military bases and shipyards, LRCWF is an 
outstanding candidate to serve as a raw energy source (feedstock) for 
gasification to produce synthetic products ``downstream.'' The 
Department of Defense, with its Clean Fuels Initiative, is interested 
in clean jet fuels which can be produced via the Fischer-Tropsch (FT) 
synthesis process from domestic coal, petroleum coke, natural gas and 
biomass. LRCWF is available from secure domestic sources, and is low 
cost, environmentally friendly, and liquid. Once LRCWF is gasified into 
a synthesis gas, it can be converted using the FT process into 
extremely clean-burning liquid fuels. Military needs for transportation 
fuels are approximately 300,000 barrels per day, representing an annual 
demand of about 110 million barrels. A large commercial production 
plant dedicated exclusively for the military would be necessary to help 
meet this need.
    Discussions have occurred regarding DOD's interest in using LRCWF 
for this purpose. Silverado has agreed to provide 1,000 barrels of 
product to the military for FT synthesis and operational testing from 
the Commercial Demonstration Plant's first run.
    LRCWF can also provide the military a low cost and environmentally 
friendly substitute for fuel oil used on military installations for 
heating and power applications. In FY 2004 the U.S. military used in 
excess of 200 million gallons (approximately 5 million barrels) of fuel 
oil for the operation and maintenance of their installations. The 
current price of fuel oil is over $2 per gallon. Silverado is currently 
in discussions to provide LRCWF as a fuel oil substitute. The 
advantages of using LRCWF are threefold. First, LRCWF is less expensive 
than oil--running at a cost of approximately $13 per oil barrel 
equivalent. Second, it is cleaner burning and third, utilizing LRCWF 
will provide a stable, domestic source of fuel and thus reduce 
dependence on foreign oil.
Polygeneration Potential of LRCWF Gasification
    Because LRCWF lends itself to gasification and is a low-cost raw 
energy source, it can serve as the starting point for a wide variety of 
industrial products once converted to a synthesis gas. The LRCWF-based 
synthesis gas, when transformed by the Fischer-Tropsch process, can 
create synthetic diesel and jet fuel, as well as naphtha and waxes. The 
synthesis gas can also be turned into ammonia and urea, for fertilizers 
and explosives. It can also be converted to methanol, ethers, and 
ethylene for plastics, polymers and other industrial and petrochemical 
uses. Clearly the development of LRCWF has numerous beneficial 
applications for the economy.
    1) LRCWF combustion looking across the throat of a vertical 
injector in a coal-fired boiler. Notice the intense, bright flame and 
the nearly complete absence of ``sparklers.'' (Sparklers would indicate 
agglomeration and incomplete combustion.) Contrary to bituminous coal, 
LRC does not agglomerate, instead it explodes upon heating for rapid 
ignition, clean burning, and a complete carbon burnout as shown here.
    2) Combustion of commercial bituminous CWF. Note the poor flame 
quality and the many ``sparklers'' (which are agglomerates many times 
larger than the feed coal). Some agglomerates are ash-covered 
spheroids, containing unburned carbon, and are so large that they 
exceed the entrainment velocity and fall to the boiler floor. This 
leads to poor carbon burnout and loss of efficiency.
Left Side: Microscopic View of Raw Low-Rank Coal Particle
    Water fills macro and micro pores of the raw coal particle. Water 
is also bound to the coal particle via hydrogen bonding to the oxygen-
containing sites in the LRC and via electro-static bonding between 
oxygen in water and cations (mineral matter) that are bonded to the 
LRC. This inherent moisture, as opposed to surface moisture, explains 
why some LRC containing over 50% moisture appears dry. Lignite or sub-
bituminous coal has inherent or equilibrium moisture values of 25% to 
40%. The high inherent moisture in LRC increases shipping costs (e.g., 
a 100-car train of LRC is actually transporting the equivalent of only 
60 to 75 cars of dry coal and 25 to 40 cars of water.) High moisture 
content has relegated most LRC to be used for mine-mouth or nearby 
power plants from which the electricity is transported.
Right Side: Microscopic View of Hydrothermally Treated LRC Particle
    Hydrothermal Treatment involves heating LRC to coal specific 
temperatures in an aqueous phase maintained by pressures above the 
saturated steam pressure (typically about 285 oC and 1500 psig), 
somewhat analogous to pressure-cooking. Water expands and is expelled 
from most of the pores when much of the oxygen in the LRC is released 
as CO2 during heating. This process eliminates most of the 
pore-bound moisture that was held by the LRC's oxygen functionalities. 
When CO2 is lost, cations are also released into the water 
phase, eliminating the inherent water associated with LRC cations; 
however, a key to permanent moisture removal is the evolution of some 
of the LRC volatile matter as waxy substances upon heating. Being 
hydrophobic, waxy material is retained on the LRC in the pressurized 
aqueous environment. Upon cooling the waxy material seals the micro-
pores, thus limiting moisture re-absorption. Following hydrothermal 
treatment, the energy content of the dry LRC increases since most of 
the volatile matter is retained and LRC carbon lost as CO2 
has already been oxidized.
    NOTE: Additional attachments submitted for the record have been 
retained in the Committee's official files.
                                 ______
                                 
    Mr. Gibbons. Mr. Anselmo, thank you very much for your time 
and your contribution to a better understanding of this issue 
by those of us sitting up here.
    As you can tell, I am the only one left so what really 
happens now is you have to suffer through the ignominy of just 
me asking questions.
    Mr. Anselmo. I look at it as they left the two best guys 
for the end.
    [Laughter.]
    Mr. Gibbons. All right. We can live with that. We can live 
with that as well.
    Let me begin with you, Mr. Anselmo, because there were some 
questions that were raised through your testimony. Relative to 
the fuels derived from oil production, how competitive is your 
process and your coal/water fuel that you have out there? How 
competitive is it in terms of cost?
    Mr. Anselmo. It is very competitive as our base cost of $10 
to $15 per barrel of oil equivalent. As compared to $75, we are 
so far ahead of the game to start that this fuel, which is used 
for industrial heat and electricity and boilers, has a very low 
base cost.
    Therefore, a nominal increase in our cost to the market 
beats the heck out of burning oil. We do not compete with oil. 
We compete with burning oil.
    Mr. Gibbons. Right. If you were to look at the energy 
contained in an equivalent volume/mass of your product, your 
coal water fuel, and say fuel converted from coal outside of 
your process, are you getting the equivalent BTU requirement?
    Mr. Anselmo. It takes 2.2 barrels of our fuel to produce 
the same amount of energy as does a barrel of oil, so we speak 
in barrel of oil equivalents. People understand a barrel of 
oil.
    Mr. Gibbons. OK. What you would then say is for the 
equivalent BTU energy it would take somewhere between $20 and 
$30 of your process to equate to a standard barrel of oil?
    Mr. Anselmo. No. In fact it costs $10 to $15 to produce 2.2 
barrels of our fuel, which gives us as much energy as does a 
barrel of oil.
    Again, our base cost is so low that we have all the upside 
in the world to produce products that are low end cost.
    Mr. Gibbons. Have you started producing your fuel in 
quantity yet? For that matter, have you gotten into any 
commercial production with it?
    Mr. Anselmo. No, we have not. Our first job is to build the 
demonstration facility, for upscale design for commercial 
production, to test this fuel in various engines, jet engines, 
to produce 1,000 barrels of jet fuel for consumption by the DOD 
for their tests as they have requested. Then the commercial 
plant would take somewhere in the neighborhood of five years or 
less to come on stream.
    Mr. Gibbons. Thank you.
    Mr. Kelly, is there any way we can streamline our process 
or streamline your process that could get these plants on line 
before 2015?
    Mr. Kelly. I think in terms of processes, I think the 
permitting process and perhaps Federal eminent domain 
legislation on rights-of-ways for product pipelines and new 
carbon dioxide pipelines that can transport and sequester the 
fuel.
    At the Medicine Bow project, for example, we have a 
CO2 flood that is 80 miles away. We will have to 
build a new pipeline. Anything that we can do to streamline 
that permitting process, which allows us to meet the 
environmental objective of sequestering that CO2, 
would be very helpful.
    Mr. Gibbons. Maybe I should say this. Realistically 
speaking, what changes to the infrastructure needs? I mean, you 
have talked about the pipelines that have to be constructed, 
but what infrastructure needs should we be considering when we 
look at this?
    I mean, we already have right-of-way permitting processes. 
We already do the sort of thing that would allow or permit you 
to construct those, but still that is an investment cost that 
has to be made and has to be established and has to be put down 
before you can become a commercial supplier, so to speak.
    What do we need to do with regard to that infrastructure 
need to accommodate the transportation of these fuels?
    Mr. Kelly. Mr. Chairman, I mean as far as the primary 
product is concerned, for example, the liquids product 
pipelines, those pipelines in our project exist, are eight 
miles from our facility, are being converted to ultra low 
sulfur diesel now and are building capacity because they are 
anticipating the production from the Medicine Bow facility.
    I think the private sector is helping do that. I think in 
terms of, for example, permitting across BLM lands, getting 
rights-of-way across BLM lands for pipelines and in particular 
for new CO2 pipelines could be very, very helpful 
here.
    Mr. Gibbons. So you are still going to require new 
pipelines to be constructed? I mean, in addition to the eight 
mile connector that you are talking about there you are still 
going to have to construct new pipelines on these existing 
rights-of-way because are most of these pipelines not currently 
full or at their capacity at this point?
    Mr. Kelly. Some of them are. In our particular case there 
is capacity on the line, and we are finalizing a contract to 
take that product and ship it out on that line to Denver for a 
20 year period.
    I think over time there is going to need to be increased 
infrastructure to meet the requirements of this Fischer-Tropsch 
fuels.
    Mr. Gibbons. OK. We have been joined by Mr. Cannon. Mr. 
Cannon, do you have any questions?
    Mr. Cannon. I do, Mr. Chairman. Thank you, and thank you 
for holding this hearing. I appreciate it.
    This is a fascinating area, and if we could predict prices 
for 10 years or 20 years a lot of the uncertainty I guess would 
come out of that.
    Mr. Ward, thanks for being here, by the way. John and I go 
back a long ways. It is nice to see you here.
    I have heard a lot of talk about these smaller scale 
facilities that are designed to do like 10,000 barrels a day or 
less. I am wondering why that is. Really are there not 
economies of scale that kick in so that a much larger facility 
would be justified?
    Mr. Ward. Yes. Thank you, Congressman Cannon. I think when 
you look at the panel that is here today you probably notice 
the absence of a lot of very large companies. I think when you 
look at the fuels industry, very large companies really do not 
have incentives to go out and build new industries that may 
disrupt the very successful business models that they already 
have going.
    What you have in front of you are small companies that are 
entrepreneurial that have an interest in creating a new 
industry and in causing disruption, and that drives us to look 
at what is possible to do in the financing markets.
    At Headwaters we believe that larger facilities are more 
economical. We are looking to try projects in the 30,000 to 
50,000 barrel a day range and think the ultimate size may be as 
large as 80,000 barrels a day, but to do that we will need 
significant support.
    The difference for a small company in trying to raise $1 
billion in the private market versus trying to raise $4 billion 
in the private market is a significant hurdle.
    Mr. Cannon. So to get a 10,000 barrel a day plant going 
then you think you can justify going into a larger operation?
    Mr. Ward. That is the theory of this incremental step up. 
Now, if Congress were to decide that they wanted to invest 
significant incentives to get this industry started the greater 
incentives that Congress can provide to the industry now, the 
shorter we can make that timeline of getting plants in service, 
establishing the business model and then creating larger plants 
that can have a real significant impact on our oil usage in 
this country.
    Mr. Cannon. You know, some people complain about the 
government--I complain about the government--picking winners 
and losers, but if the Federal government decided to help in 
this area could you talk a little bit about what we could do 
and maybe talk in terms of what we could do with a small, 
10,000 barrel a day plant versus one of these much larger 
plants and what the effect of that would have on these issues, 
what we would do and what the effect would be either with small 
plants or large plants?
    Mr. Ward. Again, I think the answer is how much support is 
Congress going to provide? You have heard a number of 
suggestions from the witnesses as far as the types of 
incentives that they see as helpful in getting this industry 
started.
    I do not think any of the witnesses see long-term subsidies 
as a solution here. What we are really looking for is 
assistance to help cross this deployment gap. There is this 
space between research and development when technologies can be 
commercially feasible and this space where you have something 
in a position where the commercial financing markets will take 
care of them.
    We are talking about bridging that gap, so we suggest steps 
like providing funding for front end engineering and design, 
having the government step in as a customer for buying fuels 
from these first few plants and thereby insulate from the risk 
of oil prices going back down, fully funding the loan 
guarantees and investment tax credits provided for in the 
Energy Policy Act, extending the 50 cent a gallon alternative 
fuels excise tax credit incentive that was in last year's 
transportation bill, but does no one any good because it 
expires before you can build a plant.
    I think if Congress were to do all of those things you 
would naturally see industry respond and the larger plants get 
built faster.
    Mr. Cannon. When you talk about this gap, let us just be 
clear for the record here.
    That gap is between the work and research that has been 
done at the Federal level using Federal dollars for research 
and development and other developments and the engineering and 
the kind of practical things you have to do to actually create 
a plant that would use that technology that has been developed?
    Mr. Ward. It is my personal opinion that government is good 
at funding research and development. What we are talking about 
in coal to liquids here is that not a lot more government 
funded research and development is needed. Industry is doing a 
good job of advancing that R&D.
    You cannot say that just because the technology is 
commercially ready that the private financial markets are ready 
to seize it and open their pocketbooks and lend the money that 
is needed to do these things, so that deployment gap has to do 
with spending the risky dollars, and for one of these 
facilities you will spend upwards of $50 million to do your 
front end engineering and design to get your permitting and 
that kind of thing in place.
    That is very risky capital. Can you provide support for 
that? Can you provide customer support so that we can go to 
Wall Street and say we have someone who will buy this product 
at a price? All of those things will give you the support you 
need to get the private market to respond on these first risky 
plants.
    Mr. Cannon. Mr. Chairman, if you will indulge me for one 
more question? In your case you are not asking for that whole 
$50 million to be paid for by the Federal government, right? 
You are looking at a partnering relationship that will allow 
you to put some money at risk, but also mitigate your risks in 
the process?
    Mr. Ward. That is correct, Congressman. I think you will 
also find a number of states who are going to be eager to 
participate in those types of arrangements as well.
    Mr. Cannon. So you are suggesting if the Federal government 
takes the lead then state and local governments will step in 
and help mitigate that risk, which is a market risk that 
creates an obstacle that is beyond the kind of disruptive 
companies' capability; that is the companies that are willing 
to do it which are disruptive which have limited resources?
    Mr. Ward. That is correct, Congressman.
    Mr. Cannon. Thank you, Mr Chairman. I yield back.
    Mr. Gibbons. Thank you, Mr. Cannon.
    Let me ask this question because we are all talking about 
plants either being built in Kentucky--well, maybe Kentucky, 
but Pennsylvania, Wyoming where large coal beds currently 
exist.
    Can these plants be located in states where rail 
transportation of the coal or the feedstock would have to occur 
over a 100 or 200 mile area and still be commercially 
competitive? For example, this would be a tradeoff between 
building the 80 mile or the 200 mile pipeline from the plant to 
the oil connecting infrastructure versus transporting the coal.
    Is there a difference in your mind between where the plant 
is located and how far the infrastructure costs versus 
transportation costs have to be?
    Yes, Mr. Anselmo?
    Mr. Anselmo. In the case of the low-rank coal and the 
removal of water from the coal, it is best done at the mine 
site so we are not transporting water.
    Mr. Gibbons. So yours is very transportation dependent?
    Mr. Anselmo. Yes. It is the transportation of the water 
that has really held back the use of low-rank coals, so to 
remove the water at the mine site and transport a slurry which 
can then be further treated with adding water at the burning 
end is the answer to bringing these coals on stream.
    We would have infrastructure from the mine site to the 
closest existing transportation facility, be it pipeline, 
shipping, trucking or whatever.
    Mr. Gibbons. OK. I have a pretty good idea of what the 
answers would be. I mean, I do not know if anybody else wants 
to contribute to that.
    Mr. Ramsbottom. I could add to that.
    Mr. Gibbons. Mr. Ramsbottom?
    Mr. Ramsbottom. Yes, Mr. Chairman. At our proposed plant in 
Natchez we can use two feedstocks, for instance, down there. We 
have rail and barge access to that proposed facility.
    Mr. Gibbons. That was going to be one of my questions why, 
and that is what started it is why you chose Natchez because I 
do not know of a coal area close to it.
    Mr. Ramsbottom. Right. We can use mines. We have proposals 
for mines in Illinois and can ship down river, rail. We can 
ship petroleum coke up from the Gulf, so we can use two 
feedstocks, if you will, to gasify. We are indifferent to each 
one.
    The other point I think which was brought up earlier is 
distribution point. In that area there are refiners that want 
to blend our fuels into their fuels to meet the sulfur 
requirements coming up from the Federal government, so there 
are other requirements other than where the feedstock are.
    There could be distribution. There could be CO2 
sequestration, which we have the opportunity in that region to 
do that. There are a number of factors that go in other than 
where the feedstock is.
    Mr. Gibbons. OK. Mr. Rich, let me talk to you a little bit 
about the relationship and the work that is going on in 
Pennsylvania to clean up the mine sites using your process and 
your company.
    Describe for me, if you will, the collaborative effort 
between the public/private partnership that is going on today 
with your process that makes it work in Pennsylvania. You are 
going to have to use the microphone.
    Mr. Rich. Well, we have 200 years worth of history in 
Pennsylvania in the anthracite fields. There is a lot of refuse 
material, reject material that has been disposed of there over 
the years. That is really a cheap source of feedstock is what 
it boils down to.
    To go back to your earlier question, if you were to 
relocate the plant elsewhere just adds a little incremental 
cost on the front end getting the feedstock to the plant.
    The State of Pennsylvania, and this goes back to Governor 
Ridge, and Governor Rendell recognized that we have the 
feedstock. It is cheap. It is why we started looking at this 
when we did because our cost per finished gallon was 
competitive five, six years ago. It has only gotten more 
appealing as evidenced by the interest obviously.
    We have the state recognizing that we are creating all new 
jobs when we do this. We are getting rid of a blight. We are 
creating products that there is an incredible appetite for. The 
state has embraced it under two administrations.
    We have applied for participation at the Federal level. We 
have two contracts in place that have helped foster all of 
this. We have a very well-developed project. As I mentioned, we 
have permits issued. We have a site. We are in the coal 
business. That is what we do.
    What we do not have and what we have not been able to do 
yet is convince the bankers, which is more scrutiny than you 
can begin to imagine, that this is something that needs to be 
pursued. That is why we came back to the Federal government. We 
are not asking for money. We are asking for a loan guarantee. 
We are asking for Uncle Sam to stand behind this first 
mortgage. That is all we are asking.
    Others are asking the same, but the point is once we close 
the financing, once we are able to announce that, it stimulates 
the capital market. It creates competition there. They want to 
get involved in these. We are soliciting the investor 
communities now. That dynamic changes. They say wait a minute. 
We are going to miss out on something. Here is an opportunity.
    During all of this, the price of oil is going up. The need 
to reduce our dependence is going up. The fact that we are 
creating all new quality jobs, high paying jobs, jobs that 
require welders and mechanics and engineers and legal 
profession and accounting profession. It is all new jobs. We 
are trapping them here. The payback is phenomenal.
    It has been recognized in the State of Pennsylvania as 
evidenced by what we have done, and this is a great opportunity 
to sit here and listen to others and try to drive our point 
home that time is against us.
    The Chinese are encumbering resources. I am not talking 
about just commodities like concrete and steel and oil. There 
is a limited amount of talent out there that design these 
facilities, that price these facilities, that have the balance 
sheet to stand beyond a construction contract such that it is 
built on time and under budget.
    These are the resources we are competing for right now. 
Because of the activity in China and the talk we hear in India, 
the price of our plant and the delivery schedule on our plant 
and these types of machines are being jeopardized. We have to 
move. We have to move quickly.
    Mr. Gibbons. Well, I think that is a very exciting recital, 
including the job creation. It was very exciting until you got 
to the part about the lawyers.
    [Laughter.]
    Mr. Gibbons. After that, it sort of went downhill.
    But I wanted to talk a little bit about the claim or the 
prospect that you can produce up to 20 percent of the 
transportation fuels that we're currently importing for that. 
That seems like an awful lot, you know. But, I mean, over what 
time frame do you see that 20 percent----
    Mr. Rich. Twenty percent of what we are importing--we are 
importing nine million barrels a day [sic]. That is less than 
two million barrels a day.
    Sasol, for example, who we are working with, has one 
facility that produces 150,000 barrels a day. That is roughly 
11 plants. That is a huge market opportunity. With a group like 
this pursuing and the competition that this in and of itself 
creates, I think we are understating 20 percent frankly.
    Mr. Gibbons. OK.
    Mr. Rich. I think no matter what we say, I do not know how 
we can dramatize how much opportunity is out there when it 
comes to getting into this transportation sector, but I think 
20 percent is well within the art of the possible in 10 to 12 
years.
    We have the pressure on oil that is driving price up. We 
are very competitive. We are talking about a 57,000 barrel a 
day facility that is roughly $4 billion that delivers us a cost 
per gallon that is roughly $1. One dollar per finished gallon? 
That is $42 a barrel finished. That is roughly $32 a barrel 
crude, and we are paying $74 for crude today? Twenty may be 
understating it.
    Mr. Gibbons. OK. Mr. Ramsbottom?
    Mr. Ramsbottom. If I could one moment add to that? Last 
week I was up at our new plant in East Dubuque, Illinois, that 
we purchased, and that facility, as I mentioned earlier, is 
going to be a polygeneration. That is fertilizer, fuel and 
electricity.
    Now, that plant probably had we not purchased that would 
have been probably the twenty-third fertilizer plant to be shut 
down in the United States. I guess it will take us three years 
to convert that facility. We will create 1,700 new jobs over 
the next three to four years in converting that plant to coal. 
We will double the number of permanent jobs in that facility, 
and now that facility has a life to go forward not just for 
fertilizer, but fuels and power.
    That is the kind of impact I think that John is alluding to 
that this industry can have in the United States.
    Mr. Gibbons. What kind of salaries do you expect to be 
paying for those jobs, and do you expect to have a shortage of 
skilled workers for those jobs?
    Mr. Ramsbottom. There will be a shortage--absolutely--in 
this industry. We are already seeing it with the APC 
contractors out there today. The resources are finite.
    The jobs in that facility with benefits are around $60,000. 
These are union paying jobs in that region, which we all know 
are going away, so these are significant paying jobs. In 
Natchez, for instance, it is about $45,000 to $50,000 in that 
region that has lost I think 3,000 jobs in the last three years 
down in that region.
    This will bring jobs back, permanent jobs back into the 
communities.
    Mr. Gibbons. I think with that statement I think it is 
clear that more states, states with diminishing industrial job-
based markets, should be interested in creating incentives in 
those states for these kinds of plants to be built.
    Of course, if we can get the cost of transportation for 
getting this feedstock from areas where there are major coal 
deposits then we could have a complete new transition in the 
industries of this country.
    Mr. Ramsbottom. And communities.
    Mr. Gibbons. And our communities. We can save some of our 
communities from just withering and atrophying down to ghost 
towns almost.
    Mr. Kelly, you look like you are anxious to say something.
    Mr. Kelly. I just wanted to add on to what Hunt said. I 
mean, in the Wyoming project we are looking at 300 to 400 new 
jobs, half of them in the coal facility in the longwall newer 
technology mine and half of them in the CTL facility for just 
the first 11,000 barrel a day facility.
    I think there, you know, the people in Wyoming in that 
particular region are looking for those opportunities, so I 
think it would be a welcome addition to the growth in jobs in 
that area. These are high paying jobs, scientific jobs. They 
can be fed by the University of Wyoming and the other 
universities in the area. I think it is a good source of job 
growth in the country.
    Mr. Gibbons. What are the air quality ramifications of 
creating a plant? In other words, do you have to go look for 
offsets in air quality for the emissions of these plants, or is 
there no----
    Mr. Kelly. Not at this stage.
    Mr. Ramsbottom. No. At this stage there is not an issue. We 
will reduce the emissions.
    Right now at the East Dubuque facility, which is run on 
natural gas, our studies have shown we will reduce the 
emissions by 33 percent by gasifying coal in the region.
    Mr. Gibbons. Great. Great. That is amazing.
    Mr. Rich. We are not talking about burning coal.
    Mr. Ramsbottom. Right.
    Mr. Rich. We are talking about converting it to hydrogen 
and CO and then using that and then converting that of course 
to liquid.
    Mr. Gibbons. Some of these plants require heat, do they 
not, to go through this process?
    Mr. Rich. Yes.
    Mr. Gibbons. So you are going to have some emissions from 
that heat unless you are using electricity.
    Mr. Ramsbottom. We will make our own power.
    Mr. Gibbons. OK.
    Mr. Kelly. Mr. Chairman, I think most of these plants that 
are polygeneration will produce and consume a lot of 
electricity to produce oxygen for the gasification, but that 
facility, that structure, is really what I will call an inside-
the-fence, integrated coal gasification combined cycle, an IGCC 
plant, which I think in most areas is viewed by the 
environmental community as the best available control 
technology to produce that type of power and for those types of 
emissions.
    Mr. Gibbons. I want to wrap up just by giving a plug to the 
State of Nevada. Any of you wishing to come to the State of 
Nevada, we want to welcome you there.
    We have plenty of land, great jobs. We have a mining 
industry that often times goes through very cyclic periods with 
very technical, very skilled labor forces. We would love to 
have a full-time, permanent, long-term job creativity. By the 
way, you can always ship your coal from Wyoming to Nevada too. 
That works for us.
    I want to thank you. We have kept you here about 20 minutes 
longer than the requisite time for torture, which is two hours. 
We appreciate the fact that you have taken time out of your 
busy days to help us better understand this very exciting 
proposal. It is something that I think this country should 
embrace with open arms.
    From everything you have said and testified to, it is 
something that we must do as part of the big picture of helping 
us solve our energy problems. Your commitment and your 
dedication to this very, very challenging project is starting 
to show real results.
    I think our country is going to be well situated to be at 
least less dependent on foreign sources of energy in the future 
because of what you do. We in Congress need to create the 
political will to enable industries like yours to go forward 
and to be successful. That is principally the purpose of the 
hearings like we are having here today.
    I want to thank all of you for your presence. I want to 
thank you for your testimony. I want to also say that we may 
have written questions be submitted from other Members who were 
not able to make this due to scheduling problems or even from 
the committee staff to clarify parts of testimony here.
    We would ask that you respond to those questions promptly 
and return them to us. It helps us better understand the issue 
and builds on the committee record for this very important 
hearing.
    From my standpoint as the Chairman of the Energy and 
Mineral Resource Subcommittee, that you have been here today 
and spent this kind of time, to you and the first panel I want 
to thank you. It has been enlightening. It has been 
educational. Quite honestly, I am building a greater hope now 
inside for the future of the country and feel that we have 
answers and solutions to some of our energy problems.
    Again, I want to thank you for your testimony today. Again, 
keep up the great work. We look forward to a brighter energy 
future incorporating much more coal than we have in the past, 
so thank you very much.
    With that, the hearing is adjourned.
    [Whereupon, at 12:25 p.m. the Subcommittee was adjourned.]

    [Additional statements submitted for the record follow:]

 Statement of The Honorable Chris Cannon, a Representative in Congress 
                         from the State of Utah

    Mr. Chairman, thank you for holding this hearing today. As the 
current cost for of oil is reaching record highs and some forecast that 
the cost could reach as high as $80 a barrel by the end of June, 
finding alternative energy sources is a high priority. In my home state 
of Utah, the average price for gasoline is $2.83 a gallon slightly 
below the national average price of $2.92 a gallon at the pump. This is 
an increase of more than 30 percent just one year ago. Addressing 
alternative energy sources is of great importance to this committee and 
to all Americans.
    The United States has been too dependent on foreign sources of oil. 
Coal is an abundant resource here in the U.S. with more than 250 
billion tons of recoverable coal reserves, equivalent to approximately 
800 billion barrels of oil. Yesterday, the cost for a barrel of oil was 
$73 and it is projected that this number will not significantly 
decrease anytime soon. However, the current estimate of liquefied coal 
is around $40/barrel. If this is true, and I hope to learn more during 
this hearing, I believe that this technology is an important 
alternative to our nation's dependence on foreign oil.
    South Africa has had a commercialized coal liquids industry since 
the 1950s. They have produced over 700 million barrels of synthetic 
fuels from coal for over two decades. Additionally, it is my 
understanding that China is investing $6 billion in new liquefaction 
plants, which will produce 440 million barrels of liquid fuel annually. 
As foreign countries have acknowledged the benefit and need for 
development of coal-to-liquid technology, I question, why we have no 
commercial coal liquefaction plants in the U.S.
    I look forward to hearing from all of our witnesses today as we 
explore coal-to-liquid technology and learn more about the role coal 
resources could have in fueling our energy needs. Additionally, I want 
to extend a warm welcome to one our witnesses, who is a fellow Utahan, 
Mr. John Ward of Headwaters Incorporated. At today's oil prices, I feel 
it is our obligation as Members of Congress to explore alternative 
energy sources, and I look forward to working this Committee as we do 
so.
                                 ______
                                 
    [The prepared statement of Mrs. Cubin follows:]

     Statement of The Honorable Barbara Cubin, the Representative 
                            for All Wyoming

    Mr. Chairman, skyrocketing energy costs to heat our homes and 
businesses--as well as fuel our cars, trucks, and tractors--has 
American consumers crying out for innovation. Over the past two years, 
our nation's dependency on foreign oil has averaged more than 58%--over 
20% higher than during the 1973 Oil Embargo. We simply must look to an 
increased use of other traditional and non-traditional domestic energy 
resources if America is ever going to gain a reasonable share of our 
energy independence.
    According to the Energy Information Administration, there are over 
267 billion tons of recoverable coal reserves in the United States--
almost 42 billion of which are located in my home state of Wyoming. 
Those reserves equate to roughly 800 billion barrels of oil. Compare 
that to the 260 billion barrels of oil in Saudi Arabia's proven 
reserves and you can see just how great the potential for this abundant 
American resource can be through the application of new coal-to-liquids 
and gasification technologies.
    Before industry can really apply these new technologies, they must 
first have a regulatory climate that supports them. Our Committee was 
responsible for crafting many of the provisions within the Energy 
Policy Act signed into law this past summer that will ease our nation's 
rapidly growing energy demand through increased domestic production of 
traditional and alternative fuel sources alike. Perhaps more 
importantly, we also included in the bill several investment tax 
credits and loan guarantees for facilities and demonstration projects 
that utilize the cutting edge, clean-coal technologies we'll be 
learning more about today.
    Regulatory red tape has made the utilization of these technologies 
so expensive and time-consuming in the past, that it simply wasn't 
economically feasible for the private sector to pursue. In today's 
climate of ever-increasing prices for oil and gas resources, those 
investments are making more and more sense. If fact, the possibilities 
for expanded coal use make so much sense in the west, that even state 
governments are working to promote the use of new, innovative 
technologies. The Wyoming state House of Representatives, for example, 
passed legislation just this past February that would give energy 
companies a tax exemption on equipment used to construct new coal 
gasification and liquefaction plants in the state.
    The future utilization of coal in America will be dependant on all 
of the factors I have mentioned this morning--technology development, 
supportive public policy, and implementation through private 
investment. I am hopeful that our witnesses today will provide 
additional guidance as to how we can continue to ensure we are 
continually moving forward in each of these areas. Doing so makes sense 
for our national energy security, our environment, and the American 
consumer.
    Thank you Mr. Chairman for holding this important hearing. I yield 
back the balance of my time.

                                 
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