[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                     THE BENEFITS AND CHALLENGES OF
                    PRODUCING LIQUID FUEL FROM COAL:
                     THE ROLE FOR FEDERAL RESEARCH

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

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON ENERGY AND
                              ENVIRONMENT

                  COMMITTEE ON SCIENCE AND TECHNOLOGY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 5, 2007

                               __________

                           Serial No. 110-51

                               __________

     Printed for the use of the Committee on Science and Technology


     Available via the World Wide Web: http://www.science.house.gov



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                                 ______

                  COMMITTEE ON SCIENCE AND TECHNOLOGY

                 HON. BART GORDON, Tennessee, Chairman
JERRY F. COSTELLO, Illinois          RALPH M. HALL, Texas
EDDIE BERNICE JOHNSON, Texas         F. JAMES SENSENBRENNER JR., 
LYNN C. WOOLSEY, California              Wisconsin
MARK UDALL, Colorado                 LAMAR S. SMITH, Texas
DAVID WU, Oregon                     DANA ROHRABACHER, California
BRIAN BAIRD, Washington              ROSCOE G. BARTLETT, Maryland
BRAD MILLER, North Carolina          VERNON J. EHLERS, Michigan
DANIEL LIPINSKI, Illinois            FRANK D. LUCAS, Oklahoma
NICK LAMPSON, Texas                  JUDY BIGGERT, Illinois
GABRIELLE GIFFORDS, Arizona          W. TODD AKIN, Missouri
JERRY MCNERNEY, California           JO BONNER, Alabama
PAUL KANJORSKI, Pennsylvania         TOM FEENEY, Florida
DARLENE HOOLEY, Oregon               RANDY NEUGEBAUER, Texas
STEVEN R. ROTHMAN, New Jersey        BOB INGLIS, South Carolina
MICHAEL M. HONDA, California         DAVID G. REICHERT, Washington
JIM MATHESON, Utah                   MICHAEL T. MCCAUL, Texas
MIKE ROSS, Arkansas                  MARIO DIAZ-BALART, Florida
BEN CHANDLER, Kentucky               PHIL GINGREY, Georgia
RUSS CARNAHAN, Missouri              BRIAN P. BILBRAY, California
CHARLIE MELANCON, Louisiana          ADRIAN SMITH, Nebraska
BARON P. HILL, Indiana               PAUL C. BROUN, Georgia
HARRY E. MITCHELL, Arizona
CHARLES A. WILSON, Ohio
                                 ------                                

                 Subcommittee on Energy and Environment

                   HON. NICK LAMPSON, Texas, Chairman
JERRY F. COSTELLO, Illinois          BOB INGLIS, South Carolina
LYNN C. WOOLSEY, California          ROSCOE G. BARTLETT, Maryland
DANIEL LIPINSKI, Illinois            JUDY BIGGERT, Illinois
GABRIELLE GIFFORDS, Arizona          W. TODD AKIN, Missouri
JERRY MCNERNEY, California           RANDY NEUGEBAUER, Texas
MARK UDALL, Colorado                 MICHAEL T. MCCAUL, Texas
BRIAN BAIRD, Washington              MARIO DIAZ-BALART, Florida
PAUL KANJORSKI, Pennsylvania             
BART GORDON, Tennessee               RALPH M. HALL, Texas
                  JEAN FRUCI Democratic Staff Director
            CHRIS KING Democratic Professional Staff Member
        MICHELLE DALLAFIOR Democratic Professional Staff Member
         SHIMERE WILLIAMS Democratic Professional Staff Member
           ELAINE PHELEN Democratic Professional Staff Member
          ADAM ROSENBERG Democratic Professional Staff Member
          ELIZABETH STACK Republican Professional Staff Member
                    STACEY STEEP Research Assistant


                            C O N T E N T S

                           September 5, 2007

                                                                   Page
Witness List.....................................................     2

Hearing Charter..................................................     3

                           Opening Statements

Statement by Representative Nick Lampson, Chairman, Subcommittee 
  on Energy and Environment, Committee on Science and Technology, 
  U.S. House of Representatives..................................     6
    Written Statement............................................     7

Statement by Representative Ralph M. Hall, Ranking Minority 
  Member, Committee on Science and Technology, U.S. House of 
  Representatives................................................     9
    Written Statement............................................    10

Statement by Representative Bob Inglis, Ranking Minority Member, 
  Subcommittee on Energy and Environment, Committee on Science 
  and Technology, U.S. House of Representatives..................     7
    Written Statement............................................     8

Prepared Statement by Representative Jerry F. Costello, Member, 
  Subcommittee on Energy and Environment, Committee on Science 
  and Technology, U.S. House of Representatives..................    10

Prepared Statement by Representative Charles A. Wilson, Member, 
  Committee on Science and Technology, U.S. House of 
  Representatives................................................    11

Prepared Statement by Representative Roscoe G. Bartlett, Member, 
  Subcommittee on Energy and Environment, Committee on Science 
  and Technology, U.S. House of Representatives..................    11

                               Witnesses:

Dr. Robert L. Freerks, Director, Product Development, Rentech, 
  Inc.
    Oral Statement...............................................    13
    Written Statement............................................    14

Mr. John N. Ward, Vice President, Marketing and Government 
  Affairs, Headwaters Incorporated
    Oral Statement...............................................    20
    Written Statement............................................    21

Dr. James T. Bartis, Senior Policy Researcher, RAND Corporation
    Oral Statement...............................................    30
    Written Statement............................................    32
    Biography....................................................    37

Dr. David G. Hawkins, Director, Climate Center, Natural Resources 
  Defense Council
    Oral Statement...............................................    38
    Written Statement............................................    39
    Biography....................................................    56

Dr. Joseph Romm, Former Acting Assistant Secretary, Office of 
  Energy Efficiency and Renewable Energy, Department of Energy; 
  Senior Fellow, Center for American Progress
    Oral Statement...............................................    56
    Written Statement............................................    58
    Biography....................................................    63

Dr. Richard D. Boardman, Senior Consulting Research and 
  Development Lead, Idaho National Laboratoryq
    Oral Statement...............................................    64
    Written Statement............................................    65

Discussion
    Water Consumption With Coal-to-Liquids Plants................    75
    CO2 Emissions.....................................    75
    Role of the Federal Government...............................    76
    Can We Use the Hydrogen Extracted From This Process?.........    76
    Coal-to-Liquids Versus Petroleum.............................    77
    Coal Production..............................................    78
    Greenhouse Gas Emissions--Cost and Viability.................    79
    Water Usage..................................................    79
    Limitations of Domestic Coal Resources.......................    80
    CTL Waste....................................................    80
    Plug-in Hybrids..............................................    81
    Running Aircraft Engines on Coal-to-Liquids..................    83
    Carbon Sequestration.........................................    84
    Reasons to Start Investing in Coal-to-Liquids................    84
    Should Carbons Be Taxed?.....................................    85
    Price of CO2......................................... 85
    Why Not Coal-to-Liquid to Help Address Global Warming?.......    86
    Is Energy Security Important?................................    86
    Should We Increase Domestic Oil Production?..................    87
    Construction of Power Plants.................................    87
    More on Domestic Oil Production..............................    88
    CTL as a Bridging Technology.................................    88
    CTL Success in Other Countries...............................    89
    Investing in CTL.............................................    90
    CTL Emissions................................................    91
    Coal Supply..................................................    92
    More on Investing in CTL.....................................    92
    More on CTL Emissions........................................    93
    CTL Commercial Application...................................    93
    Carbon Capture and Sequestration.............................    94

              Appendix: Answers to Post-Hearing Questions

Dr. Richard D. Boardman, Senior Consulting Research and 
  Development Lead, Idaho National Laboratory....................    98


  THE BENEFITS AND CHALLENGES OF PRODUCING LIQUID FUEL FROM COAL: THE 
                       ROLE FOR FEDERAL RESEARCH

                              ----------                              


                      WEDNESDAY, SEPTEMBER 5, 2007

                  House of Representatives,
            Subcommittee on Energy and Environment,
                       Committee on Science and Technology,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 10:05 a.m., in 
Room 2318 of the Rayburn House Office Building, Hon. Nick 
Lampson [Chairman of the Subcommittee] presiding.


                            hearing charter

                 SUBCOMMITTEE ON ENERGY AND ENVIRONMENT

                  COMMITTEE ON SCIENCE AND TECHNOLOGY

                     U.S. HOUSE OF REPRESENTATIVES

                     The Benefits and Challenges of

                    Producing Liquid Fuel From Coal:

                     The Role for Federal Research

                      wednesday, september 5, 2007
                         10:00 a.m.-12:00 p.m.
                   2318 rayburn house office building

Purpose

    On Wednesday, September 5, 2007 the Subcommittee on Energy and 
Environment of the Committee on Science and Technology will hold a 
hearing to receive testimony on the use of coal to produce liquid fuel, 
the status of coal-to-liquid (CTL) technologies and what additional 
research, development and demonstration programs should be undertaken 
at the Department of Energy or other agencies to better understand the 
benefits and barriers to converting coal into transportation fuels.
    The Subcommittee will hear testimony from six witnesses who will 
speak to a range of policies that warrant consideration before moving 
forward with the advancement of the production of synthetic 
transportation fuels from coal. Policies for consideration include 
carbon dioxide management, infrastructure improvements, water usage, 
energy security, energy balance of CTL technologies (energy used and 
produced), exhaust emissions, options for using coal with organically 
derived feedstocks to produce liquid fuels, coal production 
requirements, potential outcomes for consumers, and the appropriate 
level of federal investment in CTL technologies. They also will discuss 
the technical and economical challenges with meeting any desired policy 
objectives as well as the benefits and drawbacks of investing federal 
resources in CTL technologies.

Witnesses

Dr. Robert L. Freerks, Director of Product Development Rentech Corp., 
Denver, CO. He will speak to the state of development of CTL 
technologies using the Fischer-Tropsch process. He will highlight the 
benefits of the commercialization of the F-T process and discuss some 
of the challenges.

Mr. John Ward, VP, Marketing and Governmental Affairs Headwaters, Inc., 
South Jordan, Utah. He will discuss the growing global demand for oil 
and the need to explore alternative liquid fuel options using the 
Nation's abundant coal reserves. He will review the local and global 
economic benefits as well as the national security and environmental 
benefits.

Dr. James Bartis, Sr., Policy Researcher, RAND Corp., Arlington, VA. He 
will address economic and national security benefits of CTL technology 
as well as the technical challenges for addressing the carbon dioxide 
emissions resulting from the CTL process. He will also provide 
suggestions for federal activities needed to address the uncertainties 
surrounding CTL technology.

Mr. David G. Hawkins, Director, Climate Center at Natural Resources 
Defense Council, Washington, DC. He will speak to the environmental 
concerns associated with the adoption of CTL technologies--in 
particular, the ``well-to-wheel'' emissions of these new fuels and the 
impact on global climate change. He will also address other energy 
strategies which still rely on coal, but help to reduce our nation's 
carbon dioxide footprint at the same time.

Dr. Richard D. Boardman, The Secure Energy Initiative Head, Idaho 
National Laboratory, Idaho Falls, ID. He will discuss water resource 
management related to the production of liquid fuels from coal. He will 
also address the potential for producing liquid transportation fuels 
using coal with organically derived feedstocks.

Dr. Joseph Romm, Center for Energy & Climate Solutions; Center for 
American Progress; former Acting Asst. Secretary at Department of 
Energy during the Clinton Administration, Washington, DC. He will 
address the environmental policy considerations related to advancing 
CTL technology. He will focus on the role of CTL technology in a world 
with greenhouse gas constraints.

Background

    The coal-to-liquids (CTL) process was discovered by German 
scientists and used to make fuels during World War II. Since that time, 
there has been varying intensity of interest in this technology. As the 
price of petroleum and natural gas stays high, there will be an 
increasing interest in developing the commercial potential of producing 
synthetic liquid fuels from coal.
    There are a number of proposed CTL projects in the United States 
and overseas, and SASOL in South Africa has a long history with CTL. 
According to the 2007 Massachusetts Institute of Technology (MIT) 
Report ``The Future of Coal,'' SASOL has been producing 195,000 barrels 
per day of liquid fuel using Fischer-Tropsch technology for several 
decades. In addition, jet fuel from a gas-to-liquids pilot plant has 
already been certified for use by the United States Air Force.
    There are two mainstream processes for producing liquid fuels for 
transportation applications: direct and indirect. It is generally the 
indirect route for liquid fuel production that is discussed in the 
United States. A good explanation for the focus on the indirect process 
is the fact that SASOL in South Africa has commercialized that 
technology increasing the confidence in the indirect approach to 
liquefaction. In addition, the MIT Report explains that converting coal 
directly to liquid products requires reactions at high temperatures and 
high hydrogen pressure. This liquefaction route is very costly due to 
the type of equipment needed to operate at these conditions. The MIT 
report also states that in general, the direct liquefaction route 
``produces low-quality liquid products that are expensive to upgrade 
and do not easily fit current product quality constraints.''

Indirect Liquefaction Process

    As described by the MIT Report the initial step in the production 
of methane, chemicals, or liquids from coal is the gasification of coal 
to produce a syngas--this is the same process carried out in Integrated 
Gasification Combined Cycle (IGCC) for electricity generation. The 
synthesis gas, or syngas, (predominantly carbon monoxide and hydrogen) 
is cleaned of impurities and a water gas shift reaction increases the 
hydrogen to carbon monoxide ratio. Then, a Fischer-Tropsch reaction 
converts a mixture of hydrogen and carbon monoxide to liquid fuels. The 
hydrogen and carbon monoxide can be derived from coal, methane or 
biomass.

Challenges With CTL

    The MIT report states that ``Without CCS (carbon dioxide capture 
and storage), Fischer-Tropsch synthesis of liquid fuels emits about 150 
percent more CO2 as compared with the use of crude oil 
derived products.'' Requiring these facilities to capture and sequester 
the carbon dioxide will make the synfuels more expensive. However, the 
MIT report also points out that carbon capture and storage would not 
require major changes to the synfuels process or significant energy 
penalties because the CO2 is byproduct in an almost pure 
stream and easier to capture and manage.
    In addition, questions have been raised about the ability to 
guarantee a dependable and sustained market for coal-to-liquid fuels 
which could deter private-sector investment. Specifically, industry has 
expressed concern that the uncertainty of world oil prices coupled with 
the technical risks associated with the operation of the initial 
commercial plants and the implementation of carbon dioxide management 
options will make private investment difficult to obtain.
    CTL plant costs will vary based on location, capacity, construction 
climate, product slate and coal type. The Fishcer-Tropsch synthesis 
using coal has been criticized as inefficient and thus costly. The MIT 
report concludes, ``Today, the U.S. consumes about 13 million barrels 
per day of liquid transportation fuels. To replace 10 percent of this 
fuels consumption with liquids from coal would require over $70 billion 
in capital investment and about 250 million tons of coal per year. This 
would effectively require a 25 percent increase in our current coal 
production which would come with its own set of challenges.''

Benefits From CTL

    Production of domestic liquid fuel would help secure energy 
supplies by displacing imports of diesel or jet fuel. Refiners cannot 
meet U.S. demand for these fuels so diesel or jet fuel production from 
CTL facilities would offset imports.
    ``Unlike conventional transportation fuels, CTL fuels, made using 
an indirect liquefaction process, produce tailpipe emissions that are 
almost completely free of sulfur.'' (Coal International--January/
February 2007)
    ``Carbon dioxide emissions, over the full fuel cycle, can be 
reduced by as much as 20 person, compared to conventional oil products, 
through the use of carbon capture and storage.'' (Williams & Larson 
2003, Princeton University, ``A comparison of direct and indirect 
liquefaction technologies for making fluid fuels from coal,'' Energy 
for Sustainable Development, Volume VII, No. 4, December 2003).


    Chairman Lampson. Good morning. This meeting will come to 
order. I am pleased to welcome our panel of witnesses here this 
morning. As you may recall during the--during our Committee 
markup at the end of June Chairman Gordon committed to holding 
a hearing on the topic of liquid fuel production from coal. And 
I am pleased that we are able to host such an expert panel of 
witnesses today to discuss the barriers and benefits of using 
our abundant coal resources to produce liquid transportation 
fuels.
    I understand that many supporting the coal-to-liquid 
technology do so at least in part because this technology could 
help to decrease oil imports. There is no question that we must 
reduce our reliance on foreign oil supplies, and I have worked 
to ensure the Federal Government continues to play a role, a 
critical role in the development of bio-based fuels as an 
alternative to petroleum for transportation fuel.
    Achieving greater energy independence will take 
collaborative work from a range of experts. We need to fully 
explore all of our options for diversifying our fuel use. I 
sincerely hope that the urgency to achieve greater fuel supply 
diversity, energy independence, and fuel use efficiency will 
not lead us to turn a blind eye toward the pressing issue of 
global climate change. We have a need to have a comprehensive 
strategy to build an energy future that is sustainable.
    And I recognize there may be economic and strategic 
benefits of advancing coal-to-liquid technologies from both the 
regional and the global perspectives. I am also interested in 
learning more about the possibility of combining coal with 
biomass to produce liquid transportation fuels.
    I further understand that converting coal into 
transportation fuels helps reduce the emissions coming from our 
tailpipes.
    However, I am also aware that there are significant 
environmental challenges associates with using coal to produce 
liquid fuels. I believe it is essential that we continue to 
examine our energy strategies with attention to the issue of 
global warming and other environmental concerns such as 
management of our water resources.
    I am also interested in the price implications of creating 
a second market for coal that will compete with coal's use in 
electricity and the electivity generation and in the projected 
lifespan of our coal reserves.
    We can't build a coal-to-liquid industry overnight, nor 
should we fully embrace coal-to-liquid technology as part of 
our energy strategy until we have thoroughly examined all of 
the relevant concerns and plotted our next steps sensibly and 
in a manner that puts our federal resources to good use.
    Again, I would like to welcome our witnesses and say that I 
look forward to your testimony and your recommendations for the 
Committee.
    At this time I would yield to my distinguished colleague 
from South Carolina, our Ranking Member, Mr. Inglis, for an 
opening statement.
    [The prepared statement of Chairman Lampson follows:]

              Prepared Statement of Chairman Nick Lampson

    I am pleased to welcome our panel of witnesses here this morning. 
As you may recall, during our Committee markup at the end of June, 
Chairman Gordon committed to hold a hearing on the topic of liquid fuel 
production from coal.
    I am pleased that we are able to host such an expert panel of 
witnesses today to discuss the barriers and benefits of using our 
abundant coal resources to produce liquid transportation fuels.
    I understand that many supporting the coal-to-liquid technology do 
so at least in part because this technology could help to decrease oil 
imports. There is no question that we must reduce our reliance on 
foreign oil supplies, and I have worked to ensure the Federal 
Government continues to play a critical role in the development of bio-
based fuels as an alternative to petroleum for transportation fuel.
    Achieving greater energy independence will take collaborative work 
from a range of experts. We need to fully explore all of our options 
for diversifying our fuel use. I sincerely hope that the urgency to 
achieve greater fuel supply diversity, energy independence and fuel use 
efficiency will not lead us to turn a blind eye toward the pressing 
issue of global climate change.
    I recognize there may be economic and strategic benefits of 
advancing coal-to-liquid technologies from both the regional and global 
perspectives. I am also interested in learning more about the 
possibility of combining coal with biomass to produce liquid 
transportation fuels. I further understand that converting coal into 
transportation fuels helps to reduce the emissions coming from our 
tailpipes.
    However, I also am aware that there are significant environmental 
challenges associated with using coal to produce liquid fuels. I 
believe it is essential that we continue to examine our energy 
strategies with attention to the issue of global warming and other 
environmental concerns such as management of our water resources.
    I am also interested in the price implications of creating a second 
market for coal that will compete with coal's use in electricity 
generation and in the projected lifespan of our coal reserves.
    We cannot build a coal-to-liquid industry overnight and nor should 
we fully embrace CTL technology as part of our energy strategy until we 
have thoroughly examined all of the relevant concerns and plotted our 
next steps sensibly and in a manner that puts our federal resources to 
good use.
    Again, I would like to welcome our witnesses and say I look forward 
to your testimony and your recommendations for this committee.
    At this time, I would like to yield to my distinguished colleague 
from South Carolina, and our Ranking Member, Mr. Inglis for an opening 
statement.

    Mr. Inglis. Thank you, Mr. Chairman. I appreciate the 
opportunity to participate in this hearing.
    And this afternoon Coca-Cola and the United Resource 
Recovery Corporation will be announcing their intent to build 
in Spartanburg, South Carolina the largest bottle-to-bottle 
recycling plant in the world. The plant will recycle 100 
million pounds of plastic for reuse each year, enough plastic 
to make two billion, 20-ounce Coca-Cola bottles. That is a lot 
of Coke.
    The plant will bring jobs to the South Carolina's fourth 
district, require less energy than producing bottles from 
unused materials, reduce waste, and lessen carbon dioxide 
emissions by one million metric tons over the next ten years.
    It wasn't long ago when the best way we knew to deal with 
waste from bottles was to dig a hole and bury it. When we found 
out that strategy wasn't the best use of resources, nor 
environmentally sound, we innovated and started recycling.
    I suppose that when we first started realizing the negative 
effects of burying our plastic, someone could have and may have 
suggested that we just bury the waste in a different place, 
maybe at the bottom of the ocean. In retrospect, it is easy to 
see that that approach, while newer looking, was equally 
problematic.
    So, plastics are everywhere, and we learned how to 
innovate. In the same way coal is a fact of life in our current 
energy situation, and we have an opportunity to innovate to 
make it the most efficient, to make the most efficient use of 
that resource.
    And coal is a lot like those plastics. At one point we 
thought burning it in kettle stoves was a good way to heat a 
home. Now, the challenges of carbon emissions and greenhouse 
gases cause us to rethink that strategy.
    I am concerned that we may be headed down the wrong track 
here in gasifying coal for transportation use. It makes a lot 
of sense to use coal, for example, in Integrated Gasification 
Combined Cycle technology that is stationary, and it makes it 
so we can produce electricity, and then use that electricity in 
things like plug-in hybrids. And we can also generate hydrogen 
power out of similar use of that technology by capturing the 
hydrogen.
    But I have significant concerns about whether this is the 
right path, to make it into a liquid and make it a portable 
transportation fuel. It seems to me that there are other 
portable transportation fuels. We can't put a reactor in our 
trunk, and we can't clamp a windmill on the back bumper. So we 
need to find some portable energy source for our cars, and 
perhaps I could be convinced that coal-to-liquid is a good idea 
for transportation purposes, but I come with great skepticism 
about whether it would work or whether it is desirable.
    So I look forward to hearing the testimony, and Mr. 
Chairman, I yield back.
    [The prepared statement of Mr. Inglis follows:]

            Prepared Statement of Representative Bob Inglis

    This afternoon, Coca-Cola and the United Resource Recovery 
Corporation will be announcing their intent to build, in Spartanburg, 
South Carolina, the largest bottle-to-bottle recycling plant in the 
world. The plant will recycle 100 million pounds of plastic for reuse 
each year--enough plastic to make two billion 20-ounce Coca-Cola 
bottles. The plant will bring jobs to the district, require less energy 
than producing bottles from unused materials, reduce waste, and lessen 
carbon dioxide emissions by one million metric tons over the next 10 
years.
    It wasn't that long ago when the best way we knew how to deal with 
waste was to dig a hole and bury it. When we found out that that 
strategy wasn't the best use of resources, nor environmentally sound, 
we innovated and started recycling.
    I suppose that when we first started realizing the negative effects 
of burying our plastic, someone could have, and may have, suggested 
that we just bury the waste in a different place--maybe at the bottom 
of the ocean. In retrospect, it's easy to see that that approach, while 
newer looking, was equally problematic.
    So, plastics are everywhere, and we learned how to innovate around 
that reality. In the same way, coal is a fact of life in our current 
energy situation, and we have an opportunity to innovate the most 
efficient uses of that resource.
    Coal's a lot like those plastics. At one point, we thought burning 
it in kettle-stoves was a good way to heat a home. Now, the challenges 
of carbon emissions and greenhouse gases cause us to re-think that 
strategy.
    I'm concerned that we may be headed down the wrong track here in 
gasifying coal for transportation use. Instead of finding a different 
way to burn coal out of a different pipe (car exhaust instead of a 
factory smokestack), there's an opportunity to chart a new path. By 
encouraging Integrated Gasification Combined Cycle (IGCC) technology, 
we can reduce our dependence on foreign oil by utilizing our coal 
resource. We can address climate concerns by capturing and sequestering 
nearly all of the carbon emissions. Finally, from that coal, we can 
produce clean energy--electricity and hydrogen that can fuel plug-in 
and hydrogen-powered vehicles.
    Before we knew any better, we could talk energy without talking 
about climate. We no longer have that luxury. I hope that the coal 
developments we encourage take both into account, and support the 
American innovative spirit in creating a new energy economy.
    Thank you, Mr. Chairman. I yield back.

    Chairman Lampson. Thank you, Mr. Inglis.
    If there are Members who wish to submit additional opening 
statements, your statements will be added to the record at this 
point.
    Oh, Mr. Hall from Texas, we would recognize you for five 
minutes. The Ranking Member on the Full Committee.
    Mr. Hall. I am sorry, Mr. Chairman, to be late, but I did 
want to give an opening statement, and I was trying to read it 
one time before I gave it.
    Chairman Lampson. Did you make it?
    Mr. Hall. Not quite.
    Chairman Lampson. All right.
    Mr. Hall. I would like to thank you for having this very, 
very important hearing today. You and I are both from energy 
states, and we have similar ideas about it. I hope we can get 
together.
    I have stated a lot of times that coal is an important part 
of our domestic energy mix, and it should be and certainly it 
should be continued to be so through broadened use and 
particularly coal-to-liquids.
    One of our witnesses, Dr. Bartis, states in his testimony 
that, ``OPEC revenues from oil exports are about $700 billion a 
year.'' $700 billion. Now, we are handing countries like 
Venezuela, Iran, Libya, Saudi Arabia hundreds of billions of 
dollars a year. Why? Well, because unfortunately, there are 
those in this country that feel it is better to give $700 
billion to unstable foreign governments than it is to invest in 
our own country, our own workforce, our own national security, 
and our own national independence.
    And so today we are talking about coal-to-liquids 
technology, of which I have been supportive in this and 
previous Congresses. Just this year alone, we have attempted 
several times to include common-sense language to bills that 
have passed through this committee and onto the House Floor, 
language that is, in fact, supported by some of our witnesses' 
testimony, but all of which was ultimately defeated.
    I know that we have to worry not only about energy supply 
but also about the effects of energy exploration, production, 
and consumption on our own environment. And I have faith in our 
scientists and inventors that they will devise ways to 
increasingly reduce emissions from the energy life cycle of 
fossil fuels. We have to have fossil fuels. It is ridiculous to 
think we are going to do without them or we are about to do 
without them.
    If we can invent ways of--for humans to live in space, we 
can continue to improve the capture and sequestration of carbon 
dioxide and other greenhouse gases. I have said it before; we 
should use all domestic resources to arrive at energy 
independence. We need renewable energy and plug-in hybrids, but 
we also need clean coal technology, nuclear power, and 
environmentally-responsible exploration and drilling for oil 
and natural gas on American soil and in American waters.
    While we continue R&D into renewable fuels and alternative 
vehicles, we still need fossil fuels in order to maintain the 
lifestyle that we Americans deserve and that makes the United 
States of America the greatest country in the world. The 
alternative is sending our young overseas to take some energy 
away from people when we don't have to. We have plenty right 
here at home.
    Thank you. I yield back my time to a good Chairman.
    [The prepared statement of Mr. Hall follows:]

           Prepared Statement of Representative Ralph M. Hall

    Thank you Chairman Lampson. I would like to thank you for having 
this very important hearing today. I have stated many times that coal 
is an important part of our domestic energy mix and that it should 
continue to be so through broadened use--in particular, coal-to-
liquids.
    One of our witnesses, Dr. Bartis, states in his testimony that, 
``OPEC revenues from oil exports are about $700 billion a year.'' $700 
billion a year. We are handing countries like Venezuela, Iran, Libya, 
and Saudi Arabia hundreds of billions of dollars a year. Why? Because 
unfortunately, there are those in this country that feel it is better 
to give $700 billion dollars to unstable foreign governments than it is 
to invest in our own country, our own work force, our national security 
and our energy independence.
    So today we're talking about coal-to-liquids technology, of which I 
have been supportive in this and previous Congresses. Just this year 
alone, Republicans have attempted, several times, to include common 
sense language to bills that have passed through this committee and on 
the House Floor. Language that is in fact supported by some of our 
witnesses's testimony, but all of which was ultimately defeated by the 
Majority. I know that we have to worry not only about our energy 
supply, but also the effects of energy exploration, production and 
consumption on our environment. I have faith in our scientists and 
inventors that they will devise ways to increasingly reduce emissions 
from the energy life cycle of fossil fuels. If we can invent ways for 
humans to live in space, we can continue to improve the capture and 
sequestration of carbon dioxide and other greenhouse gases.
    I've said it before--we need it all. We need renewable energy and 
plug-in hybrids, but we also need clean coal technology, nuclear power 
and environmentally responsible exploration and drilling for oil and 
natural gas on American soil and in American waters. While we continue 
R&D into renewable fuels and alternative vehicles, we still need fossil 
fuels in order to maintain the lifestyle that we Americans deserve and 
that makes the United States of America the greatest country in the 
world.

    Chairman Lampson. Thank you, Mr. Hall. You did a good job.
    Mr. Hall. Would you like me to read it again?
    Chairman Lampson. Well, the second time could get better.
    Mr. Hall. I do really thank you.
    Chairman Lampson. You are welcome. We thank you.
    Now I can say that if there are other Members who want to 
enter something into the record, you may do so, and we will, it 
will be done at this point in the record.
    [The prepared statement of Mr. Costello follows:]

         Prepared Statement of Representative Jerry F. Costello

    Good morning. Mr. Chairman, thank you for calling this important 
hearing to examine the benefits and challenges of producing liquid fuel 
from coal and to identify necessary research to overcome the challenges 
of converting coal to liquids.
    In the past several months, Congress has focused on energy reform 
and ways to address our dependence on foreign oil while maintaining a 
sound environment and national economy. Given the volatility of the oil 
and gas markets, it makes sense to develop policies that place a 
greater dependence on domestic resources, and coal-to-liquids is one 
way to help achieve this goal.
    In 2006, the United States ranked as the top world-wide consumer of 
oil, consuming 20.6 million barrels of oil per day and importing 12.2 
million barrels per day. China was next, consuming 7.3 million barrels 
per day and importing 3.4 million barrels per day. While China still 
trails the United States in consumption and importation levels, it is 
dedicating substantial amounts of funds to coal-to-liquids and other 
technology in an effort to become more energy independent.
    The United States has an abundant supply of coal, and I firmly 
believe coal-to-liquids, particularly in combination with carbon 
capture and storage (CCS) and other technologies, is part of the 
solution to achieving U.S. energy independence, continued economic 
prosperity and improved environmental stewardship.
    Fuels produced by coal-to-liquids are cleaner than petroleum-
derived transportation fuels. Coal-to-liquids plants using CCS can 
produce fuels with life cycle greenhouse gas emission profiles that are 
as good as or better than that of petroleum-derived products.
    In February, I joined Chairman Gordon and twenty-five other House 
Democrats in sending a letter to Speaker Pelosi and Majority Leader 
Hoyer stating our strong commitment to advancing the deployment of 
clean coal technologies, including CCS. In order for CCS technology to 
become commercially viable, the Federal Government must show it is 
committed to funding the necessary research, development, and 
demonstration (RD&D) projects.
    Mr. Chairman, as you know, I have been a strong advocate for 
federal coal initiatives and programs. I intend to continue to work 
with my colleagues on both sides of the aisle to ensure we continue to 
advance clean coal technology to overcome the technical and economical 
challenges for coal-based power plants.
    To that end, I am glad we are having today's hearing because it is 
imperative that we understand the benefits and the challenges that must 
be addressed for coal-to-liquids. I look forward to hearing from the 
witnesses on these issues, and specifically their recommendations on 
necessary research and development projects that would further clarify 
the benefits and challenges in the deployment of coal-to-liquids fuels.

    [The prepared statement of Mr. Wilson follows:]

         Prepared Statement of Representative Charles A. Wilson

    Thank you, Mr. Chairman, for holding this important hearing. I 
appreciate having the opportunity to participate this morning.
    I would like to welcome today's witnesses; I look forward to 
hearing their views on coal-to-liquid (CTL) fuel technology. This 
hearing offers us a great opportunity to discuss the positive 
implications of the development of CTL fuel technologies, and the role 
Congress can play in helping this energy resource become a viable 
option in the United States.
    With energy prices continuing to rise, it is vital that we work to 
find new technologies to aide in reducing our nation's dependence on 
foreign energy sources. Coal is our nation's most abundant resource and 
must play a role in building our energy future.
    CTL fuel conversion is a proven technology that is currently in use 
throughout the world. Coal-to-liquid technologies have been used since 
World War II, and today, South Africa uses the technology to produce 
approximately 40 percent of its transportation fuels.
    In fact, in my district, Baard Energy, L.L.C., is in the 
development phase of building a 35,000 barrel per day coal-to-liquids 
facility in Wellsville, Ohio. The facility's unique design and 
operation has the potential to sequester up to 85 percent of all carbon 
dioxide produced, and will be capable of producing synthetic jet fuel, 
diesel fuel and other valued chemical feedstocks. Additionally, the 
Wellsville facility is estimated to have a major impact on the regional 
economy, creating up to 200 high-paying plant jobs and 750 new mine 
jobs.
    While I understand that there are some obstacles to coal-to-liquid 
fuels, I believe that they can be overcome with the help of the Federal 
Government. That being said, I am excited to bring CTL research and 
technologies to the forefront of Congress's discussion on energy 
independence and security. Again, thank you all for coming today--I am 
looking forward to hearing from you all today and working together in 
the future.

    [The prepared statement of Mr. Bartlett follows:]

        Prepared Statement of Representative Roscoe G. Bartlett

    There are a number of important national security and environmental 
considerations involved with coal-to-liquids technologies, including 
global peak oil, a topic I have discussed many times. This committee 
and the Full House have previously addressed the topic of coal-to-
liquid (CTL) technologies on a number of occasions. I appreciate the 
opportunity to gather a summary of important actions to date into the 
record for this hearing.
    In an effort to begin moving forward with research and development 
into using coal-to-liquids for energy Republicans in April of this year 
offered a Motion To Recommit to H.R. 363, the Sowing the Seeds Through 
Science and Engineering Research Act. This language authorized the 
Director of the Office of Science at the Department of Energy when 
carrying out a program to award grants to scientists and engineers at 
the early stage of their careers at institutions of higher education 
and research organizations to prioritize grants expanding domestic 
energy production and use through coal-to-liquids and advanced nuclear 
reprocessing. These grants were for up to five years and at least 
$80,000 per year. This language was accepted and approved on the House 
Floor by a vote of 264 to 154. H.R. 363 including this language went on 
to pass the House Floor that day by a vote of 397-20. Furthermore, H.R. 
2272, the 21st Century Competitiveness Act of 2007, which combined 
several Science and Technology competitiveness bills, including H.R. 
363, passed the House Floor under suspension of the rules and by voice 
vote.
    At the appointment of conferees on H.R. 2272, the 21st Century 
Competitiveness Act of 2007, Ranking Member Hall offered a motion to 
instruct conferees asking that the managers on the part of the House at 
the conference on the bill be instructed to insist on the language 
prioritizing the early career grants to science and engineering 
researchers for the expansion of domestic energy production and use 
through coal-to-liquids technology and advanced nuclear reprocessing. 
This non-binding motion passed the House Floor by a vote of 258 to 167.
    Just two days later when the conference report on H.R. 2272 came to 
the Floor, with the coal-to-liquids language removed, a motion to 
recommit the conference report with instructions using the same 
language as the motion to instruct, which passed 258-167 just two days 
before, was voted down 199-227. In two days, months of House precedent 
was ignored. I am not sure why, but over 50 of my colleagues switched 
their vote. I am grateful that today's hearing will allow us to examine 
and discuss the implications of federal support for research and 
development into the potential for domestic energy to be produced from 
coal-to-liquids.
    In addition to the actions taken by the House, on June 20, 2007, a 
new congressionally mandated report from the National Research Council 
of the National Academies of Science was released. It recommends an 
increase of about $144 million annually in new federal funding in a 
variety of areas to ensure that coal is mined efficiently, safely, and 
in an environmentally responsible manner. One of the areas the report 
recommended requires additional study is estimates of the amount, 
location, and quality of mineable coal. The report indicated that there 
is enough coal at current rates of production to meet anticipated needs 
through 2030, and probably enough for 100 years. However, the report 
concluded that it is not possible to confirm the often-quoted assertion 
based upon estimates from the mid-1970's that there is a sufficient 
supply for the next 250 years. This range of estimates from 100 years 
to 250 years is based upon current use rates. It does not take into 
account the increased use rate that would result from coal-to-liquids 
technologies. The report noted that actual usage rates of coal could 
vary considerably depending upon any regulatory carbon constraints 
imposed by federal legislation or international agreements.
    I look forward to the testimony of today's witnesses about the pros 
and cons of proposals concerning the production of synthetic 
transportation fuels from coal and the appropriate role of Federal 
Government involvement in any such efforts.

    Chairman Lampson. At this time I would like to introduce 
our witnesses. We have Dr. Robert Freerks, Director of the--of 
Product Development with Rentech Corporation, Dr. James T. 
Bartis is a Senior Policy Researcher at the RAND Corporation, 
Dr. David G. Hawkins is the Director of the Climate Center at 
the National Resources Defense Council. Dr. Joseph Romm is a 
Senior Fellow with the Center for American Progress. Dr. Romm 
is also former Acting Assistant Secretary of the Office of 
Energy Efficiency and Renewable Energy during the Clinton 
Administration. Dr. Richard D. Boardman heads the Security, the 
Secure Energy Initiative at the Idaho National Laboratory, 
Department of Energy, and I was looking for my friend from 
Utah, Mr. Matheson, to introduce our last witness, Mr. Ward, 
but Mr. Matheson didn't get--come in and say nice things. So, 
Mr. Ward, John Ward, is the Vice-President for Marketing and 
Governmental Affairs at Headwaters, Inc.
    And we welcome all of you. And our witnesses should know 
that spoken testimony is limited to five minutes each, after 
which the Members of the Committee will have five minutes to 
each ask questions.
    And we will begin with Dr. Freerks.

     STATEMENT OF DR. ROBERT L. FREERKS, DIRECTOR, PRODUCT 
                   DEVELOPMENT, RENTECH, INC.

    Dr. Freerks. Thank you. Good morning. I am Dr. Robert 
Freerks, Director of Product Development for Rentech. I am a 
synthetic organic chemist with 26 years experience in the 
science of fuels and for the past eight years have been working 
on producing synthetic jet fuel and diesel fuel, utilizing the 
Fischer-Tropsch (F-T) process.
    Rentech is one of the world's leading developers of 
Fischer-Tropsch technologies with 25 years experience building 
and operating five plants. Our plant designs are a 
straightforward application of proven commercial components. 
The process first takes any carbon source, gasifies it to 
producing gas, which is fed to Fischer-Tropsch's reactor, and 
the raw F-T products are processed into chemical feedstocks, 
diesel, jet fuel, and NAPTHA.
    The process captures CO2 and other contaminants 
at several stages. F-T can be a significant element of the 
solution for the dual energy challenges facing America, 
dependence on imported crude oil, and the need to reduce our 
greenhouse gas emissions. Given the abundance of domestic 
feedstocks and the proven track record of the technology, F-T 
fuels can greatly help reduce oil imports and Rentech will lead 
the way.
    Along with our commitment to energy security, Rentech is 
dedicated to reducing greenhouse gas emissions. CO2 
capture is inherent in the Rentech process, although the only 
obstacle to significant carbon emissions reductions is 
sequestration. Rentech has teamed with Denbury Resources, a 
company that is leading in the way on CO2 
sequestration and enhanced oil recovery (EOR).
    When used for EOR, CO2 from the production of 
one barrel of F-T fuel yields an additional barrel of oil for 
marginal oil fuels, resulting in a two-for-one domestic energy 
benefit. Rentech fuels are the cleanest liquid transportation 
fuels available.
    As you can see from the containers in front of you, the 
fuels are clearer, they smell like wax, they contain 
essentially no sulfur and aromatics, they are non-toxic, 
biodegradable, and completely compatible with the fuel 
distribution system in engines.
    The DOD, a leader in this area, has found F-T fuels to meet 
virtually all of their environmental and performance 
requirements, including significant particulate matter 
reductions up to 96 percent, reduce CO2 emissions, 
and higher performance in advanced aircraft.
    Last month the Air Force certified its entire B-52 fleet to 
run on a 50/50 blend of F-T jet fuel with conventional jet 
fuel, and we look forward to 2011, when that certification is 
extended to the entire fleet.
    Today the barriers to building large scale coal and pet 
coke fed F-T facilities are purely financial. Oil price 
volatility continues to discourage potential F-T investors. 
Congress should enact policies to help reduce risk and 
encourage investment in these plants. And I refer to my written 
statement for our recommendations including a regulatory and 
legal framework for CO2 sequestration.
    Also, as our nation enters into a regulatory regime for 
managing CO2 emissions, it will be critical that the 
system established to account for man-made CO2 is 
beyond reproach. This committee should take the leadership role 
in forcing the development of a modern, comprehensive, and 
universal model for assessing the life cycle greenhouse gas 
emissions for all fuels. Such a life cycle analysis should 
consider the latest production technologies and processes, the 
energy inputs throughout the production of the raw material, 
and through the distribution to the point of sale, including 
those of imported oil and other fuels and the emissions 
associated with their use.
    What I have discussed so far is the current state of coal-
to-liquid (CTL) technology. What I want to discuss next is the 
future.
    As I described above, the first step in our process is 
gasification of the feedstock to produce gas for use in our F-T 
reactor. Rentech is in the early stages of developing the next 
generation of our process, biomass to liquids (BTL). Unlike 
CTL, which has been utilized commercially for decades, 
commercialization of BTL faces near-term hurdles. Current 
biomass gasification technology is not nearly as advanced as 
that of coal gasification. Most manufacturers are just now 
investigating the ability of their systems to accept biomass 
along with coal.
    Advancing new biomass gasification and co-feed technologies 
could be greatly expedited with federal support. Biomass 
gasification works, and it is our objective to integrate it 
into our production process in progressively-increasing 
percentages. But for a company such as Rentech or any of the 
other U.S.-based F-T fuel developers and their investors, such 
risks are not financeable at this time.
    Congress can help advance the technology of BTL through the 
establishment of a loan or grant program to allow commercial 
operators to acquire gasifiers that can be dedicated to testing 
various forms of biomass over extended periods and growing 
season.
    Once biomass has been proven as a viable commercial 
feedstock for F-T plants and the plants are connected to carbon 
sequestration opportunities such as EOR, as is our Natchez 
plant, then it is entirely realistic to envision a process that 
absorbs CO2 from the atmosphere and stores it 
underground. This would move transportation fuels and coal from 
being a producer of greenhouse gasses to being a net part of 
the solution. We view this as the game changer, not only for 
Rentech, but for our nation.
    Thank you very much for the opportunity to address the 
Subcommittee today, and I look forward to answering any 
questions.
    [The prepared statement of Dr. Freerks follows:]

                Prepared Statement of Robert L. Freerks
 
   Honorable Members of the House of Representatives Committee on 
Science and Technology, Subcommittee on Energy and Environment, thank 
you for the opportunity to testify today on the benefits and challenges 
of producing fuels from coal. I am Dr. Robert Freerks, Director of 
Product Development for Rentech, Inc. For the past eight years I have 
been working on processes for the production of synthetic jet and 
diesel fuels from alternative resources utilizing the Fischer-Tropsch 
(F-T) process. My educational background is in synthetic organic 
chemistry and I have 26 years experience in fuels and related 
technologies.
    Rentech is one of the world's leading developers of Fischer-Tropsch 
technologies. As such, it is the company's vision to develop technology 
and projects to transform underutilized hydrocarbon resources such as 
coal, petroleum coke, remote or stranded natural gas and biomass and 
municipal waste into valuable clean fuels and chemicals that will help 
accommodate our nation's growing energy needs. Our company has been in 
the business of developing alternative and renewable energy 
technologies for more than 25 years, having been initially affiliated 
with the Solar Energy Research Institute which became the National 
Renewable Energy Laboratory in Golden, Colorado. Rentech's focus is on 
the technology for converting synthesis gas, carbon monoxide and 
hydrogen, into ultra clean synthetic diesel and jet fuels via the 
Fischer-Tropsch process followed by hydroprocessing.
    The goal of our efforts is to demonstrate the viability of this 
technology for diverse alternative feedstock materials into fungible 
transportation fuels in volumes great enough to reduce importation of 
crude oil and refined fuel products. Currently the United States 
imports approximately 65 percent of our crude oil and fuel products. 
Conversion of biomass into first generation biofuels is estimated by 
EIA to provide only 11.2 billion gallons in 2012 per year or 458,000 
barrels of oil equivalent per day, which would account for about 2.3 
percent of today's consumption of 20 million barrels per day. The 
largest plants will have a capacity of no more than about 7,000 barrels 
per day. Rentech's first plant will produce 30,000 barrels each day or 
460 million gallons per year, and it will be scalable to more than 
80,000 barrels per day.
    Rentech is well aware of the dual energy problems facing America: 
The need for independence from imported crude oil; and the need to 
reduce the greenhouse gas (GHG) footprint of these fuels. First I'd 
like to briefly address energy security. As a company we believe that 
the U.S. cannot achieve energy independence without utilization of its 
many diverse natural resources, including both renewable and fossil 
fuels. Given the current level of our dependence upon imported oil we 
must consider all realistic options in solving this problem. But 
achieving this goal will take guidance and support from the Federal 
Government to protect investors from the consequences market 
manipulation by the oil cartel. We must remember that the oil markets 
are not free markets and it is not unreasonable to believe that if we 
begin to succeed in ending our addiction to foreign oil, the nations 
that produce it will try to undermine our efforts at energy 
independence by cutting prices. Relying on affordable, abundant 
domestic coal helps to mitigate strategic concerns, but does not 
eliminate the risk of a price cut intended sustain our addiction to 
imported oil.
    The benefits to the U.S. in terms of energy security, balance of 
payments, and the establishment of the new CTL technology base with an 
associated increase in jobs will be substantial and obvious. Projects 
that Rentech is developing are located in economically challenged areas 
such as our proposed plant in Natchez, Mississippi, and our conversion 
of a fertilizer plant in East Dubuque, Illinois. Our hope is that 
Washington will make a long-term commitment to a broad suite of 
alternative energy solutions; including those utilizing our abundant 
coal reserves, but that encourages cooperative efforts across segments 
of the alternative fuels industry.
    Second, Rentech is committed to developing and deploying 
technologies and processes that reduce the GHG emissions associated 
with both the production and use of our fuels. We have assembled a 
Carbon Leadership Team to address the overall carbon footprint of fuels 
production using Rentech's F-T technology. This team which includes all 
senior executives, staff scientists and engineers has committed the 
company to being a leader in reduction of carbon dioxide emissions from 
our projects. A CO2 solution is a key decision criterion in 
advancing a project. The Rentech plant design already incorporates 
carbon capture as an integral part of the process, the only obstacle to 
significant carbon emissions reductions is sequestration of the 
captured carbon dioxide.
    But our commitment to CO2 management does not stop at 
the fence. Rentech has already established relationships with companies 
that transport and sequester CO2 using existing Enhanced Oil 
Recovery (EOR) technologies that have been proven for over 20 years. 
EOR in conjunction with F-T fuels production will increase available 
energy by approximately one barrel of crude for every barrel of F-T 
fuel produced, increasing oil production from existing North American 
fields and further improving our nation's energy security. Pipelines 
already exist for the transportation of CO2 in several areas 
of the country and plans are being formulated to extend pipeline 
capabilities to cover significant areas of the central and eastern U.S. 
Rentech has partnered with Denbury Resources to supply CO2 
to several locations for EOR sequestration. One sequestration site is 
the Gulf Coast Stacked Storage project in Cranfield, Mississippi, part 
of the Southeast Regional Carbon Sequestration Partnership (SECARB), a 
public-private partnership dedicated to the development and deployment 
of carbon sequestration solutions.
    But the benefits of Rentech's fuels are not limited to 
CO2. Rentech fuels will be the cleanest liquid 
transportation fuels available. F-T diesel and jet fuel are pure 
paraffinic hydrocarbons. This means that they inherently contain 
essentially no sulfur and aromatics, two fuel components that have long 
been the focus of federal and State environmental protection policies. 
The fuels are clear, non-toxic, biodegradable and completely fungible 
with current fuels and fuel transportation infrastructure. This means 
that no changes are needed to fuel distribution pipelines or engines to 
use F-T diesel and jet fuel. (A comparison of the life cycle CO2 
emissions from diesel fuels produced from coal to diesel fuels produced 
from several different qualities of crude oil is shown below as Figure 
1.)
    The Department of Defense has been a leader in advancing the 
development of a U.S.-based Fischer-Tropsch fuels industry. As part of 
several conjoined programs, the Department is seeking to encourage the 
development of a domestic alternative fuels industry that can provide a 
reliable source of fuel for their aircraft, tanks, ships and other 
vehicles while reducing emissions. For the sake of simplifying 
logistics, these initiatives also aim to reduce the multiple types of 
fuels that our military must carry to the battlefield--approximately 
nine. This new fuel also must be capable of being stored, transported 
and distributed using existing infrastructure. Only fuels produced 
using the Fischer-Tropsch process are able to meet all of these 
requirements.
    Through the Assured Fuels Initiative the Air Force has tested F-T 
jet fuel in multiple applications from a diesel engine powered HMMWV 
(Hummer) to a B-52 bomber. Last month, the Air Force certified its 
entire B-52 fleet to fly on a 50/50 blend of F-T jet fuel and 
conventional jet fuel, and is progressing on extending that 
certification to all its aircraft by 2011. (See Figure 2 below for a 
comparison of particulate emissions from a turbine engine using blends 
of conventional and synthetic Fischer-Tropsch jet fuels. Figure 3 
illustrates the DOD view of the future use of F-T jet fuel in a 
multitude of applications.)
    Commercial aviation is also progressing towards full acceptance of 
F-T jet fuel in general aviation aircraft. The Federal Aviation 
Administration is supporting the Commercial Aviation Alternative Fuels 
Initiative (CAAFI) which will oversee the efforts to approve the use of 
blends of F-T fuel with conventional jet fuel. This fuel is already in 
use in South Africa and all planes flying out of Johannesburg 
International Airport have been using a blend of F-T jet fuel and 
conventional jet fuel for seven years, including Delta Air Lines that 
recently initiated service from Atlanta.
    F-T fuels offer numerous benefits for aviation users. The first is 
an immediate reduction in particulate emissions. F-T jet fuel has been 
shown in laboratory combustors and engines to reduce PM emissions by 96 
percent at idle and 78 percent under cruise operation. Validation of 
the reduction in other turbine engine emissions is still under way. 
Concurrent to the PM reductions is an immediate reduction in CO2 
emissions from F-T fuel. F-T fuels inherently reduce CO2 
emissions because they have higher energy content per carbon content of 
the fuel, and the fuel is less dense than conventional jet fuel 
allowing aircraft to fly further on the same load of fuel.
    The fuel also offers increased turbine engine life through lowered 
peak combustion temperature. This reduces stress on hot components in 
the turbine engine thereby increasing the life of those components. 
Fuels that burn cooler may also help to reduce the heat signature of 
aircraft, making them less vulnerable to infrared missile attacks. 
(Figure 3 shows some of the many applications for F-T jet fuel in 
military equipment ranging from tanks to fuel cells to spacecraft.) 
Also critical to meeting the needs of aviation, F-T fuels are truly 
``drop-in replacements'' for their petroleum-based counterparts, 
requiring no new pipelines, storage facilities, or engine 
modifications, barriers that have stalled other alternative aviation 
fuels programs.
    Another advantage to F-T fuels is the maturity of the technology. 
Rentech's plant designs are a relatively straight forward application 
of existing, proven commercial components that can provide reliable 
production of liquid hydrocarbon fuel and chemical products. The 
process first takes a carbon source such as coal, gasifies it to carbon 
monoxide and hydrogen (known as synthesis gas or syngas), removes 
contaminants from this syngas including carbon dioxide, and captures 
energy from that process for electricity production. The purified 
syngas is then fed to a Fischer-Tropsch reactor where the carbon 
monoxide and hydrogen are converted to hydrocarbons. At this stage, 
additional carbon dioxide is captured from the recycle stream and 
prepared for sequestration. The raw F-T products are further processed 
into chemical feedstocks, diesel, jet fuel and naphtha using 
conventional refining and distillation technologies. (See Figure 4 for 
a simplified process flow diagram.)
    Today, the barriers to building large scale commercial F-T 
facilities that can cut into the volume of imported oil are purely 
financial. The history of the energy business, particularly the oil 
industry, is marked by volatility. Investors have long memories and, as 
has been said before, ``capital is cowardly.'' Many who are interested 
in investing in alternative energy production are looking to Washington 
to provide some level of certainty. The cost of a 30,000 to 40,000 
barrel per day F-T plant is estimated in the $3 to $6 billion range, 
numbers that are often associated with large traditional refineries or 
power plants, not alternative energy production.
    Federal policies and programs that can help to provide the needed 
certainty can take several forms. The first, and most natural, would be 
for the Department of Defense to enter into long-term supply contracts 
with F-T fuel producers. There are several bipartisan proposals to 
enable this, including extension of the Department's contracting 
authority from its current five-year limit to 25 years. Next would be 
the establishment of a program similar to that proposed by 
Representatives Boucher and Shimkus to create a ``price collar'' 
program which would protect producers from a dramatic drop in oil 
prices and taxpayers through a revenue sharing mechanism when prices 
exceed a certain level.
    Extending the extending the existing alternative fuels excise tax 
credit, which covers F-T fuels and is set to expire in the fall of 
2009, to 2020 would also provide a level of protection for investors 
from potential OPEC price manipulation intended to undermine U.S. 
alternative energy programs.
    The next area that the Federal Government can assist in is 
providing regulatory certainty with respect to CO2 
sequestration. The DOE should encourage the exploration of options for 
managing industrial CO2 and the Federal Government should 
assume responsibility for geologically sequestered CO2.
    As our nation enters into a regulatory regime for managing CO2 
emissions, it will also be critical that the system that is established 
to account for manmade CO2 is beyond reproach. This 
committee should take a leadership role in forcing the development of a 
modern, comprehensive and universal model for assessing the life cycle 
greenhouse gas emissions for all fuels. Such a life cycle analysis 
should consider the latest production technologies and processes, the 
energy inputs throughout production of the raw material through fuel 
distribution to the point of sale, including those of imported oil and 
other fuels, and the emissions associated with its use. This model 
should be applicable across all fuel types and not tailored to consider 
only the emissions of a few.
    With the exception of improving life cycle analysis science, all of 
the incentives that I have listed are to advance deployment of F-T 
technology rather than to advance the state of it. To repeat, our 
current hurdles are financial much more than technical. But as I 
described above, the first step in our process is the gasification of a 
feedstock, either coal or petroleum coke, to produce synthetic natural 
gas for use in our F-T reactor. While coal and pet coke are the 
feedstock of choice today that does not forever have to be the case. As 
a company we are agnostic on what feedstock we use, as long as it 
works. Rentech is in the early stages of developing the next generation 
of our process--biomass-to-liquids. Unlike CTL, which has been utilized 
commercially for decades, commercialization of BTL faces near-term 
hurdles. Current gasification technology manufacturers and operators 
have limited or no experience with biomass gasification on a commercial 
scale. Some are just now investigating their ability to feed biomass 
along with coal and there is no estimate yet available for how much 
biomass could be fed without upsetting the design of the gasifier.
    Advancing new biomass gasification technologies could be greatly 
expedited with federal support to attract investment. Biomass 
gasification works and it is our objective, moving forward, to prove 
technologies and processes that allow for an increasing percentage of 
our feedstock to come from biomass. Congress can help advance the 
technology of BTL through the establishment of loan or grant programs 
expressly to allow commercial operators to acquire gasifiers that can 
be dedicated to testing various forms of biomass over extended periods 
and growing seasons. Coupled with carbon sequestration this holds great 
potential to help move fuels production from a process that emits 
CO2 to one that absorbs CO2. But for a company 
such as Rentech, or any of the other U.S. based F-T fuels developers 
and their investors, such risks are not financeable at this time.
    There is also a role for the Federal Government in assessing the 
regional availability of various biomass supplies. It is currently not 
known how much biomass will be available in any given location without 
disrupting the ecology of that area or impacting food supply. It is 
always assumed that biomass is readily available, but few studies exist 
to show that supplying biomass to a major fuels production facility can 
be accomplished on a sound economic basis and that this supply can be 
sustained for an extended time period. Congress should study of the 
availability and cost of biomass in several areas of the U.S. where CTL 
plants could be located. The sustainable availability of biomass at 
some level is needed if biomass is to be used to reduce the overall 
carbon footprint of a CTL facility. There have been assertions that 
specific levels of biomass co-feeds are possible. These will remain 
academic theories until these questions are answered.
    Once biomass has been proven as a viable commercial feedstock for 
F-T plants and plants are connected to carbon sequestration 
opportunities such as EOR, as is our Natchez plant, then it is entirely 
realistic to envision a process that extracts CO2 from the 
atmosphere and stores it underground. This would move transportation 
fuels from being a contributor to global warming to being part of the 
solution. We view this as a ``game changer'' not only for Rentech but 
for our nation.
    Thank you very much for the opportunity to address the Subcommittee 
today and I look forward to answering any questions you may have for 
me.










Bibliography

(1)  Marano, J.J.; Ciferno, J.P. Life Cycle Greenhouse Gas Emissions 
Inventory For Fischer-Tropsch Fuels, U.S. Department of Energy, 
National Energy Technology Laboratory, 2001.

(2)  Altman, R.L. In House Transportation Committee Hearing on Energy 
Independence and Climate Change, Washington, DC 2007.

(3)  Corporan, E.; DeWitt, M.J.; Monroig, O.; Ostdiek, D.; Mortimer, 
B.; Wagner, M. American Chemical Society, Fuels Chemistry Division 
2005, 51, 338.

(4)  Harrison, W.; ``The Drivers for Alternative Aviation Fuels'' 
Presentation, OSD: 2006.

(5)  ``The Potential Use of Alternative Fuels for Aviation,'' in 
International Civil Aviation Organization, Montreal, Canada, 2007. 
http://web.mit.edu/aeroastro/partner/reports/caep7/caep7-ip028-
altfuels.pdf

(6)  Maurice, L. ``Alternative Fuels, Aviation and the Environment'' 
ICAO/Transport Canada Workshop on Aviation Operational Measures for 
Fuel and Emissions Reductions, Canada, 2006. http://www.icao.int/icao/
en/env/WorkshopFuelEmissions/Presentations/Maurice.pdf

(7)  Reed, M.E.; Gray, D.; White, C.; Tomlinson, G.; Ackiewicz, M.; 
Schmetz, E.; Winslow, J. Increasing Security and Reducing Carbon 
Emissions of the U.S. Transportation Sector: A Transformational Role 
for Coal with Biomass, NETL, 2007.

    Chairman Lampson. Thank you, Dr. Freerks.
    Mr. Ward.

 STATEMENT OF MR. JOHN N. WARD, VICE PRESIDENT, MARKETING AND 
          GOVERNMENT AFFAIRS, HEADWATERS INCORPORATED

    Mr. Ward. Thank you, Mr. Chairman. Members of the 
Committee, I am John Ward, Vice President of Headwaters 
Incorporated, on whose behalf I am testifying today. I am the 
Immediate Past President of the American Coal Council and also 
serve on the National Coal Council as appointed by the 
Secretary of Energy.
    Headwaters is a member of the Coal-to-Liquids Coalition, 
which is a broad group of industry, labor, energy technology 
developers, and consumer groups. This coalition is interested 
in strengthening U.S. energy independence through the greater 
utilization of domestic coal to produce clean transportation 
fuels.
    The prospect of making liquid transportation fuels from 
America's abundant coal resources has received significant 
attention in recent months, and as with any high-profile policy 
debate, this means many misconceptions have arisen. It may be 
best at this point to summarize what coal-to-liquids is by 
pointing out what it is not.
    First of all, coal-to-liquids is not a new kind of fuel. 
Any liquid fuel product that can be made from crude oil can be 
made from coal. Products from coal-to-liquids plants include 
high quality gasoline, diesel fuel, and jet fuel that can be 
used in the existing engines without modification of those 
engines and can be distributed through out existing fuel 
distribution systems.
    Second of all, coal-to-liquids is not dirty. In fact, fuels 
produced by today's coal-to-liquids processes are exceptionally 
clean when compared to today's petroleum-derived fuels. Coal-
to-liquid fuels contain substantially no sulfur. They also 
exhibit lower particulate and carbon monoxide emissions. These 
fuels also contribute less to the formation of nitrogen oxides 
than petroleum-derived fuels, and they are readily 
biodegradable.
    As for greenhouse gas emissions, coal-to-liquids refineries 
generate carbon dioxide in highly-concentrated form, allowing 
for carbon capture and storage. Coal-to-liquids refineries with 
carbon dioxide capture and storage can produce fuels with life 
cycle greenhouse gas emissions profiles that are as good as or 
better than the petroleum fuels that they replace.
    And finally, coal-to-liquids is not strictly a research and 
development effort. The term ``coal-to-liquids'' refers to a 
broad class of technologies for making liquid transportation 
fuels from coal. Many of these technologies have been known for 
decades. Many are being deployed at commercial scale in other 
parts of the world. And likewise, carbon capture and storage 
technologies are currently being practiced at commercial scale 
for enhanced oil recovery operations in many locations around 
the globe.
    As the Federal Government considers measures to support 
coal-to-liquids, it is important to provide two different types 
of support.
    First, commercialization incentives are needed to speed the 
commercial deployment of coal-to-liquids facilities in the 
United States with the goal of increasing our nation's energy 
security.
    Second, research support is needed to continue to improve 
the efficiency and environmental performance of coal-to-liquids 
technologies, with the goal of making this already clean 
resource even cleaner.
    Specific areas where continued research and development 
support would be beneficial include: number one, utilization of 
biomass as a strategy for reducing greenhouse gas emissions.
    Number two, improving life cycle assessment tools for 
determining greenhouse gas emissions profiles for coal-to-
liquids facilities when compared to other fossil fuel energy 
sources.
    And number three, expanding methods of carbon capture and 
storage beyond the currently available opportunities in the 
area of enhanced oil recovery.
    The advantages to developing a coal-to-liquids capability 
in the United States are numerous, and 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 using technologies that are already proven.
    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 the invitation to testify and your interest 
in this important topic. I would be happy to answer any 
questions.
    [The prepared statement of Mr. Ward follows:]

                   Prepared Statement of John N. Ward

                  Improving America's Energy Security

                 Through Liquid Fuels Derived from Coal

    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 Immediate Past 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 post-
combustion coal product manager, recycling 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 have entered the biofuels market by constructing our 
first ethanol production facility utilizing waste heat from an existing 
coal fueled power plant in North Dakota. Headwaters is also active as 
both a technology provider and a project developer in the field of 
coal-to-liquid fuels.
    Headwaters is a member of the Coal-to-Liquids Coalition--a broad 
group of industry, labor, energy technology developers and consumer 
groups. This coalition is interested in strengthening U.S. energy 
independence through greater utilization of domestic coal to produce 
clean transportation fuels.

Summary of Testimony

    The prospect of making liquid transportation fuels from America's 
abundant coal resources has received significant attention in recent 
months. As with any high profile policy debate, this means that many 
misconceptions have arisen. It may be best, at this point, to summarize 
what ``Coal-to-Liquids'' is by pointing out what it is not:

          Coal-to-liquids is not a new kind of fuel. Any liquid 
        fuel product that can be made from crude oil can be made from 
        coal. Products from coal-to-liquids plants include high quality 
        gasoline, diesel fuel, and jet fuel that can be used in 
        existing engines without making any modifications to the 
        engines or distribution systems for the fuel.

          Coal-to-liquids is not dirty. In fact, fuels produced 
        by coal-to-liquids processes are exceptionally clean when 
        compared to today's petroleum-derived transportation fuels. 
        Coal-to-liquids fuels contain substantially no sulfur and also 
        exhibit lower particulate and carbon monoxide emissions. These 
        fuels also contribute less to the formation of nitrogen oxides 
        than petroleum derived fuels and they are readily 
        biodegradable. As for greenhouse gas emissions, coal-to-liquids 
        refineries generate carbon dioxide in highly concentrated form 
        allowing carbon capture and storage. Coal-to-liquids refineries 
        with carbon dioxide capture and storage can produce fuels with 
        life cycle greenhouse gas emission profiles that are as good as 
        or better than that of the petroleum-derived products they 
        replace.

          Coal-to-liquids is not strictly a research and 
        development effort. The term ``coal-to-liquids'' refers to a 
        broad class of technologies for making liquid transportation 
        fuels from coal. Many of these technologies have been known for 
        decades and many are being deployed at commercial scale around 
        the world. Likewise, carbon capture and storage technologies 
        are currently being practiced at commercial scale for enhanced 
        oil recovery operations.

    As the Federal Government considers measures to support coal-to-
liquids, it is important to provide two different types of support:

          Commercialization incentives are needed to speed the 
        commercial deployment of coal-to-liquids facilities in the 
        United States with the goal of increasing our nation's energy 
        security.

          Research support is needed to continue to improve the 
        efficiency and environmental performance of coal-to-liquids 
        technologies with the goal of making this already clean 
        resource even cleaner.

    Specific areas where continued research and development support 
would be beneficial include:

          Utilization of biomass as a strategy for reducing 
        greenhouse gas emissions.

          Improving life cycle assessment tools for determining 
        greenhouse gas emissions profiles for coal-to-liquids 
        facilities when compared to other fossil fuel energy sources.

          Expanding methods of carbon capture and storage 
        beyond currently available opportunities in the area of 
        enhanced oil recovery.

Why Coal-to-Liquids?

    It's easy to see why coal-to-liquids is attracting so much 
attention these days. In the President's words, the United States is 
addicted to oil. U.S. petroleum imports in 2005 exceeded $250 billion. 
In the past two years, natural disasters have disrupted oil production 
and refining on the U.S. gulf coast. Political instability in the 
Middle East and other oil producing regions is a constant threat. Fuel 
prices have rapidly escalated along with world oil prices that are 
reaching levels unseen since the 1970s energy crisis.
    The situation is not likely to get much better in the future. 
Global oil demand was 84.3 million barrels per day in 2005. The United 
States consumed 20.7 million barrels per day (24.5 percent) and 
imported 13.5 million barrels per day of petroleum products. Worldwide 
demand for petroleum products is expected to increase 40 percent by 
2025 largely due to growing demand in China and India. World oil 
production could peak before 2025. Most of the remaining conventional 
world oil reserves are located in politically unstable countries.
    In contrast, coal remains the most abundant fossil fuel in the 
world and the United States has more coal reserves than any other 
country. With coal-to-liquids technology, the United States can take 
control of its energy destiny. Any product made from oil can be made 
from coal. At today's oil prices, coal-to-liquids is economical and has 
the power to enhance energy security, create jobs here at home, lessen 
the U.S. trade deficit, and provide environmentally superior fuels that 
work in today's vehicles. By building even a few coal-to-liquids 
plants, the U.S. would increase and diversify its domestic production 
and refining base--adding spare capacity to provide a shock absorber 
for price volatility.

Coal-to-Liquids Historical Perspective

    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.
    The founders of this group included scientists engaged in the 
Manhattan Project during World War II. After the conclusion of the war, 
these scientists were dispatched to Europe to gather information on 
technologies used by Germany to make gasoline and diesel fuel from coal 
during the war.
    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 cheap 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, Headwaters 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 an 1,800 
barrels 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 
more than $70 per barrel and comes predominantly 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?

Coal-to-Liquids Technology Overview

    From a product perspective, coal-to-liquids refineries are very 
similar to petroleum refineries. They make the same range of products, 
including gasoline, diesel fuel, jet fuel and chemical feedstocks. 
These fuels can be distributed in today's pipelines without 
modification. They can be blended with petroleum derived fuels if 
desired. They can be used directly in today's cars, trucks, trains and 
airplanes without modifications to the engines.
    From a production perspective, coal-to-liquids refineries utilize 
technologies that have been commercially proven and are already being 
deployed in other parts of the world. Two main types of coal-to-liquids 
technologies exist. Indirect coal liquefaction first gasifies the solid 
coal and then converts the gas into liquid fuels. Direct coal 
liquefaction converts solid coal directly into a liquid ``syncrude'' 
that can then be further refined into fuel products.
    To understand how coal-to-liquids technologies work, it is helpful 
to focus on the role of hydrogen in fuels. Coal typically contains only 
five percent hydrogen, while distillable liquid fuels such as petroleum 
typically contain 14 percent hydrogen. The hydrogen deficit can be made 
up in two different ways:




Direct Coal Liquefaction
    Direct coal liquefaction involves mixing dry, pulverized coal with 
recycled process oil and heating the mixture under pressure in the 
presence of a catalyst and hydrogen. Under these conditions, the coal 
transforms into a liquid. The large coal molecules (containing hundreds 
or thousands of atoms) are broken down into smaller molecules 
(containing dozens of atoms). Hydrogen attaches to the broken ends of 
the molecules, resulting in hydrogen content similar to that of 
petroleum. The process simultaneously removes sulfur, nitrogen and ash, 
resulting in a synthetic crude oil (syncrude) which can be refined just 
like petroleum-derived crude oil into a wide range of ultra-clean 
finished products.




    Direct coal liquefaction originated in Germany in 1913, based on 
work by Friedrich Bergius. It was used extensively by the Germans in 
World War II to produce high octane aviation fuel. Since that time, 
tremendous advancements have been made in product yields, purity and 
ease of product upgrading.
    From 1976 to 2000, the U.S. Government invested approximately $3.6 
billion (1999 dollars) on improving and scaling up direct coal 
liquefaction. During this time, pilot and demonstration facilities 
ranging from 30 to 1800 barrels per day of liquid fuel were built and 
operated in the United States. The end result of this effort is the HTI 
DCL process developed by Hydrocarbon Technologies Incorporated, a 
subsidiary of Headwaters.
    In June 2002, the largest coal company in China (Shenhua Group) 
agreed to apply the HTI technology for the first phase of a three-phase 
multi-billion dollar direct coal liquefaction project. The Shenhua 
direct coal liquefaction facility in Inner Mongolia is currently under 
construction and is scheduled to startup in 2008. The first phase, as 
currently configured, has a capacity of 20,000 barrels per day.
    Additional direct coal liquefaction projects are currently being 
studied or planned in India, the Philippines, Mongolia and Indonesia. 
The Philippines project is based on hybrid technology utilizing both 
direct and indirect coal liquefaction.

Indirect Coal Liquefaction
    Indirect coal liquefaction is a two-step process consisting of coal 
gasification and Fischer-Tropsch (FT) synthesis. Coal is gasified with 
oxygen and steam to produce a synthesis gas (syngas) containing 
hydrogen and carbon monoxide. The raw syngas is cooled and cleaned of 
carbon dioxide and impurities. In the F-T synthesis reactor, the 
cleaned syngas comes in contact with a catalyst that transforms the 
diatomic hydrogen and carbon monoxide molecules into long-chained 
hydrocarbons (containing dozens of atoms). The F-T products can be 
refined just like petroleum-derived crude oil into a wide range of 
ultra-clean finished products.




    Indirect coal liquefaction was developed in Germany in 1923 based 
on work by Drs. Franz Fischer and Hans Tropsch. During World War II, 
the technology was used by Germany to produce 17,000 barrels per day of 
liquid fuels from coal.
    In 1955, Sasol constructed an indirect coal liquefaction plant at 
Sasolburg, South Africa. Additional indirect coal liquefaction plants 
were constructed by Sasol in Secunda, South Africa. Today Sasol 
produces the equivalent of 150,000 barrels per day of fuels and 
petrochemicals using its technology--supplying approximately 30 percent 
of South Africa's liquid transportation fuels from coal. Technologies 
for indirect coal liquefaction are also being developed and deployed by 
Headwaters, Shell, Syntroleum and Rentech.
    Indirect coal liquefaction projects are currently being studied or 
planned in China, Philippines, Germany, Netherlands, India, Indonesia, 
Australia, Mongolia, Pakistan and Canada. In the United States, 
indirect coal liquefaction projects are being considered in Alaska, 
Arizona, Colorado, Illinois, Indiana, Kentucky, Louisiana, Mississippi, 
Montana, North Dakota, Ohio, Pennsylvania, Texas, West Virginia and 
Wyoming,

Comparison of Direct and Indirect Coal Liquefaction Products
    One of the main differences between direct and indirect coal 
liquefaction is the quality of the raw liquid products. Direct coal 
liquefaction raw products contain more ring structure. Therefore direct 
coal liquefaction naphtha is an excellent feedstock for production of 
high-octane gasoline, while direct liquefaction distillate requires 
considerable ring opening (mild hydrocracking) to generate on spec 
diesel fuel. On the other hand, the straight-chain structure 
hydrocarbons produced by indirect coal liquefaction technology results 
in high-cetane diesel fuel, but indirect liquefaction naphtha needs 
substantial refining (isomerization and alkylation) to produce on spec 
gasoline.
    Both processes produce low-sulfur, low-aromatic fuels after the 
refining step Direct and indirect coal liquefaction can be combined 
into a hybrid plant that produces both types of products that can be 
blended into premium quality gasoline, jet fuel and diesel with minimum 
refining.




    Indirect coal liquefaction plants usually include combined-cycle 
electric power plants because they produce a substantial amount of 
steam and fuel gas that can be used to generate electricity. Direct 
coal liquefaction plants produce less steam and fuel gas, so they can 
be designed to purchase electricity, be self-sufficient in electricity 
generation or generate excess power depending on the local market 
conditions.
    Direct coal liquefaction plants produce more liquid fuel per ton of 
coal than indirect plants. However, indirect plants are better suited 
for polygeneration of fuels, chemicals and electricity than direct 
plants.
    The preferred feedstock for direct coal liquefaction plants is low-
ash, sulfur-bearing, sub-bituminous or bituminous coal. Indirect plants 
have greater feedstock flexibility and can be designed for almost any 
type of coal ranging from lignite to anthracite.

Coal-to-Liquids Environmental Profile

    Fuels produced by coal-to-liquids processes are usable in existing 
engines without modifications and can be distributed through existing 
pipelines and distribution systems. Nevertheless, they are 
exceptionally clean when compared to today's petroleum-derived 
transportation fuels.
    Indirect coal liquefaction fuels derived from the Fischer-Tropsch 
process, in particular, contain substantially no sulfur and also 
exhibit lower particulate and carbon monoxide emissions. These fuels 
also contribute less to the formation of nitrogen oxides than petroleum 
derived fuels and they are readily biodegradable.
    The production of coal-to-liquids fuels is also environmentally 
responsible. Because coal liquefaction processes remove contaminants 
from coal prior to combustion, process emissions from coal-to-liquids 
plants are much lower than traditional pulverized coal power plants.
    Both direct and indirect coal liquefaction plants generate carbon 
dioxide in highly concentrated form allowing carbon capture and 
storage. Coal-to-liquids plants with carbon dioxide capture and storage 
can produce fuels with life cycle greenhouse gas emission profiles that 
are as good as or better than that of petroleum-derived products.
    A life cycle greenhouse gas emissions inventory for indirect coal 
liquefaction diesel was prepared for the U.S. Department of Energy 
National Energy Laboratory (NETL) in June 2001. This study compared the 
emissions for indirect coal liquefaction (with and without carbon 
capture and storage) diesel with conventional petroleum diesel 
delivered to Chicago, IL. Some of the results from that study are 
summarized in the following table:




    Life cycle greenhouse gas emission inventories have not been 
completed on direct and hybrid coal liquefaction technologies. However, 
based on the fact that these technologies have lower plant CO2 
emissions than indirect coal liquefaction and the CO2 is in 
concentrated form, it can be assumed that direct and hybrid 
technologies will have lower life cycle GHG emissions than conventional 
petroleum diesel.
    Gasification technologies like those that would be used in coal-to-
liquids plants have already demonstrated the ability to capture and 
store carbon dioxide on a large scale. For example, the Dakota 
Gasification facility in North Dakota captures CO2 from the 
gasification process and transports it by pipeline to western Canadian 
oil fields where it is productively used for enhanced oil recovery.
    There is also growing interest in utilizing coal and biomass 
(agricultural and forestry byproducts) together to further reduce net 
carbon dioxide emissions. This is achieved because biomass is 
considered a renewable resource and a zero net carbon dioxide emitter. 
The co-processing of coal and biomass would allow a much greater scale 
of liquid fuel production than an exclusive reliance on biofuels.
    The co-processing of coal and biomass in commercial gasification 
plants is being done in Europe in the range of 80 to 90 percent coal 
and 10 to 20 percent biomass. It is speculated that up to 30 percent of 
the feed mix could be in the form of biomass; however there are 
economic and logistic issues to consider. Biomass is a bulky material 
with low density, high water content and is expensive to transport and 
pre-process for gasification. In addition, it tends to be seasonal and 
widely dispersed.

Coal-to-Liquids Economics Profile

    Coal-to-liquids projects are capital intensive. Direct coal 
liquefaction is slightly less capital intensive than indirect coal 
liquefaction ($50,000-$60,000/bpd versus $60,000-$80,000/bpd). 
Escalating capital costs related to raw materials prices and equipment 
availability make small coal-to-liquids projects less economic and may 
force some developers to look at larger capacity projects on the order 
of 30,000 to 80,000 barrels per day to take advantage of economies of 
scale.
    High capital costs ($2.5 billion to $6 billion per project) and 
large project size (30,000 to 80,000 barrels per day) will dictate 
where and how viable coal-to-liquids projects can be built. Multiple 
partners will likely be required to spread the risks and costs. These 
partners may include coal suppliers, technology providers, product 
users, operators, or private equity providers.
    Large, low-cost coal reserves (from 500 million tons to over one 
billion tons) will be needed; preferably dedicated to the project. 
Coal-to-liquids plants can be adapted to handle any kind of coal 
through proper selection of the coal gasification technology.
    The following graph indicates the impact of plant size on project 
economics. Large CTL plants (30,000 to 80,000 barrels per day) can 
compete with petroleum-derived products when crude oil prices exceed 
$35 to $45 per barrel, not including costs related to carbon capture 
and storage. In this case the debt to equity ratio was assumed to be 
70:30 and did not include any government incentives on product sales. 
This graph is only for discussion purposes. Economic analysis should be 
based on site specific conditions for each project.




Coal-to-Liquids Commercialization Challenges

    Estimates of the potential for coal-to-liquids vary widely. The 
Southern States Energy Board that posits the possibility of coal-to-
liquids production exceeding five million barrels per day. The National 
Coal Council puts forth the vision of 2.6 million barrels per day by 
the year 2030. The Energy Information Administration reference case 
forecast projects coal-to-liquids production at about 800,000 barrels 
per day by 2030. This forecast assumes real oil prices increase 1.6 
percent per annum over the forecast period. If real prices rise 3.6 
percent per annum, EIA projects coal-to-liquids production to more than 
double to over 1.6 million barrels per day.
    Although larger scale coal-to-liquids projects appear to be 
economically viable in today's oil price environment, there are still 
significant hurdles to get the first projects built. There are no coal-
to-liquids plants operating in the U.S. that would serve as 
commercially proven models. Until that happens, financial institutions 
will be reluctant to fund multi-billion dollar projects without 
significant technology and market performance guarantees. This includes 
some assurance that plants will not be rendered uneconomic by oil 
producing nations or cartels that may seek to artificially reduce oil 
prices just long enough to prevent the formation of this competitive 
new industry.
    Other nations are moving forward more aggressively to deploy coal-
to-liquids technologies. In China, for instance, the government has 
already committed more than $30 billion to commercialization of coal 
gasification and liquefaction technologies and construction of the 
first plants has begun.
    In the United States, Headwaters is one of several companies that 
are pursuing development of coal-to-liquids projects using private 
sector financing. As an example, one of the projects we are pursuing in 
the United States is the American Lignite Energy project located in 
North Dakota. American Lignite Energy 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 has already committed $10 million of 
matching funds for front end engineering and design activities. But the 
project's viability is by no means certain. The task of raising upwards 
of $2 billion to build one of the first American coal-to-liquids 
refineries is daunting--especially for smaller companies like ours.
    Headwaters certainly does not advocate abandoning America's open 
and efficient financial markets for a more 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.
    As long as oil prices remain high or climb higher, market forces 
will lead to the development of a coal-to-liquids infrastructure in the 
United States. But that development will come slowly and in measured 
steps. If for energy security reasons, the United States would like to 
speed development of a capability for making transportation fuels from 
our most abundant domestic energy resource, then incentives for the 
first coal-to-liquids project are appropriate.

Coal-to-Liquids Potential Commercialization Incentives

    Incentives for commercializing coal-to-liquids technologies in the 
United States should be constructed to address the market risks that 
make financing of the first several plants difficult. For example, one 
widely discussed approach would establish an ``oil price collar'' to 
guide the government's investment. If oil prices were to drop below a 
specified level, the United States would make payments to coal-to-
liquids projects participating in the program to ensure their 
viability. Alternatively, if oil prices rose above a higher specified 
level, the participating projects would pay back into the program. 
Properly constructed, such a program could have a meaningful effect on 
addressing the market risk associated with fluctuating oil prices.
    The Coal-to-Liquids Coalition has also identified five specific 
actions the Federal Government could take 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. 
        The recent SAFETEA-LU 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 more quickly for our nation.

Areas Needing Additional Research and Development

    Research support is needed to continue to improve the efficiency 
and environmental performance of coal-to-liquids technologies with the 
goal of making this resource even cleaner.
    Headwaters has for a period of over 25 years collaborated with 
DOE's National Energy Technology Laboratory (NETL) on a number of 
research and development activities related to the direct and indirect 
conversion of coal to transportation fuels and chemicals.
    Most recently, we have benefited from a number of economic and 
technical reports and analyses on coal conversion processes that have 
been both created and made public by NETL. Particularly pertinent to 
today's discussion is a recently completed study for the Air Force, 
showing how coal biomass to liquids (CBTL) processes can be 
economically and environmentally competitive, not only in today's 
marketplace, but also in the future when the control of greenhouse 
gases becomes a national mandate.
    Specific areas where continued research and development support 
would be beneficial include:

          Utilization of biomass as a strategy for reducing 
        greenhouse gas emissions.

          Improving life cycle assessment tools for determining 
        greenhouse gas emissions profiles for coal-to-liquids 
        facilities when compared to other fossil fuel energy sources.

          Expanding methods of carbon capture and storage 
        beyond currently available opportunities in the area of 
        enhanced oil recovery.

Coal-to-Liquids Advantages

    The advantages to developing a coal-to-liquids capability in the 
United States are numerous. 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 using technologies that are 
already proven. 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 the invitation to testify and for your interest in 
this important topic. I would be happy to answer any questions.

    Chairman Lampson. Dr. Bartis.

  STATEMENT OF DR. JAMES T. BARTIS, SENIOR POLICY RESEARCHER, 
                        RAND CORPORATION

    Dr. Bartis. Thank you for inviting me to testify.
    The United States oil consumers are currently paying about 
a half trillion dollars per year for crude oil, and most of 
that amount ends up being paid for by households, either 
directly or in higher prices for products and services. The 
bill averages to almost $5,000 per household per year. More 
over, the large amount of wealth transferred--on a global 
basis--from oil consumers to oil producers raises serious 
national security concerns because some, although certainly not 
all, of this revenue is being spent contrary to our foreign 
policy interests.
    But no less pressing is the importance of addressing the 
threat of global climate change. For example, without measures 
to address carbon dioxide emissions, the use of coal-derived 
liquids to displace petroleum fuels for transportation will 
more than double greenhouse gas emissions. And this is clearly 
not acceptable.
    The emphasis of our research at RAND on unconventional 
fuels has concentrated on what is known as the Fischer-Tropsch 
coal-to-liquids method. We find this option to be the only 
unconventional fuel option that is commercially ready today and 
capable of eventually displacing millions of barrels per day of 
imported petroleum.
    Producing large amounts of unconventional fuels, including 
coal-derived liquid fuels, and moving towards greater energy 
efficiency will cause world oil prices to decrease. Our 
research shows that under reasonable assumptions this price 
reduction effort could be very large and would likely result in 
large benefits to U.S. consumers and large decreases in OPEC's 
revenues.
    We have also examined whether a large domestic coal-to-
liquids industry can be developed consistent with the need to 
manage carbon dioxide emissions.
    If we are willing to accept emission levels that are 
similar to those associated with conventional petroleum, the 
answer is definitely yes. One technical approach for achieving 
parity with petroleum is the capture and sequestration of the 
carbon dioxide generated at the plant site.
    A second approach involves using a combination of coal and 
biomass as we just heard. Fortunately, the second approach is 
very low risk, although not quite ready for commercial 
production.
    Now, given the large demand on OPEC oil that we anticipate 
will persist over the next 50 years, this is a very good 
answer. We can at least address a major economic and national 
security problem while not worsening environmental impacts, at 
least on the global scale.
    If, however, we demand a significant reduction in the 
emission levels as compared to conventional petroleum, the 
answer is a qualified yes. The only way we know of reaching 
this level of carbon dioxide control when making coal-derived 
fuels is to use a combination of coal and biomass as the feed 
for the plant and to capture and sequester most of the carbon 
dioxide generated at the plant site. The reason I give a 
qualified yes is that there does remain considerable 
uncertainty regarding the viability of sequestering carbon 
dioxide in geological formations.
    Against this background of benefits and challenges, federal 
R&D has an important role to play. Foremost in priority are 
multiple large-scale demonstrations of carbon sequestration. 
Our analysis shows that the limiting factor in the growth of a 
domestic coal-to-liquids industry will be the time required to 
determine whether and how hundreds of millions of tons of 
carbon dioxide can be annually sequestered.
    The remainder of my recommendations follow from what we at 
RAND describe as the middle path to coal-to-liquids 
development, namely a path that focuses on reducing 
uncertainties, fostering early, but very limited, commercial 
experience; and reducing greenhouse gas emissions.
    First, Congress should consider providing federal cost 
sharing for a few site-specific front-end engineering designs 
of commercial plants to convert coal-to-liquid fuels so that 
government and private investors have better information on 
production costs. At RAND we have learned that when it comes to 
cost estimates it is often the case that the less you know the 
more attractive the costs.
    Second, Congress should consider establishing a flexible 
incentive program capable of promoting the construction and 
operation of a few early coal-to-liquid plants by our country's 
top technology firms. The early plants could also serve as 
demonstration platforms for carbon capture and sequestration 
and the combined use of biomass and coal.
    Third, the current energy R&D program on transportation 
fuels in the Department of Energy is too narrowly focused on 
hydrogen and ethanol from cellulosic materials. This program 
needs to expand to provide adequate support to gasification of 
biomass or a combination of coal and biomass.
    The most pressing near-term research need centers on 
developing a fuel handling and gasification system capable of 
accepting both biomass and coal.
    Finally, I recommend consideration of a number of important 
high-risk, high-payoff research opportunities that are not 
being addressed in the current federal program because they 
require a longer timeframe for execution, and these 
opportunities are covered in my written testimony.
    This concludes my remarks. Thank you.
    [The prepared statement of Dr. Bartis follows:]

                Prepared Statement of James T. Bartis\1\
---------------------------------------------------------------------------
    \1\ The opinions and conclusions expressed in this testimony are 
the author's alone and should not be interpreted as representing those 
of RAND or any of the sponsors of its research. This product is part of 
the RAND Corporation testimony series. RAND testimonies record 
testimony presented by RAND associates to federal, State, or local 
legislative committees; government-appointed commissions and panels; 
and private review and oversight bodies. The RAND Corporation is a 
nonprofit research organization providing objective analysis and 
effective solutions that address the challenges facing the public and 
private sectors around the world. RAND's publications do not 
necessarily reflect the opinions of its research clients and sponsors.
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  Research and Development Issues for Producing Liquid Fuels From Coal

    Mr. Chairman and distinguished Members: Thank you for inviting me 
to speak on technical issues associated with the potential use of our 
nation's coal resources to produce liquid fuels. I am a senior policy 
researcher at the RAND Corporation with more than 25 years of 
experience in analyzing and assessing energy technology and policy 
issues. At RAND, I am actively involved in research directed at 
understanding the costs and benefits associated with alternative 
approaches for promoting the use of coal and other domestically 
abundant resources, such as oil shale and biomass, to lessen our 
nation's dependence on imported petroleum. Various aspects of this work 
are sponsored and funded by the National Energy Technology Laboratory 
(NETL) of the U.S. Department of Energy, the U.S. Air Force, the 
Federal Aviation Administration, and the National Commission on Energy 
Policy.
    Today, I will discuss the key problems and policy issues associated 
with developing a domestic coal-to-liquids industry and the approaches 
Congress can take to address these issues. My main conclusions are as 
follows. First, successfully developing a coal-to-liquids industry in 
the United States would bring significant economic and national 
security benefits by reducing energy costs and wealth transfers to oil-
exporting nations. Second, the production of petroleum substitutes from 
coal may cause a significant increase in carbon dioxide emissions; 
however, relatively low-risk research opportunities exist that, if 
successful, could lower carbon dioxide emissions to levels well below 
those associated with producing and using conventional petroleum. 
Third, without federal assistance, sufficient private-sector investment 
in coal-to-liquids production plants is unlikely to occur because of 
uncertainties about the future of world oil prices, the costs and 
performance of initial commercial plants, and the viability of carbon 
management options. Finally, a federal program directed at reducing 
these uncertainties; obtaining early, but limited, commercial 
experience; and supporting research appears to offer the greatest 
strategic benefits, given both economic and national security benefits 
and the uncertainties associated with economic viability and 
environmental performance, most notably the control of greenhouse gas 
emissions.
    Some of the topics I will be discussing today are supported by 
research that RAND has only recently completed; consequently, the 
results have not yet undergone the thorough internal and peer reviews 
that typify RAND research reports. Out of respect for this committee 
and the sponsors of this research, and in compliance with RAND's core 
values, I will present only findings in which RAND and I have full 
confidence at this time.

Technical Readiness and Production Potential

    As part of RAND's examination of coal-to-liquids fuels development, 
we have reviewed the technical, economic, and environmental viability 
and production potential of a range of options for producing liquid 
fuels from domestic resources. If we focus on unconventional fuel 
technologies that are now ready for large-scale, commercial production 
and that can displace at least a million barrels per day of imported 
oil, we find only two candidates: grain-derived ethanol and Fischer-
Tropsch (F-T) coal-to-liquids. Moreover, only the F-T coal-to-liquids 
candidate produces a fuel that is suitable for use in heavy-duty 
trucks, railroad engines, commercial aircraft, or military vehicles and 
weapon systems.
    If we expand our time horizon to consider technologies that might 
be ready for use in initial commercial plants within the next five 
years, only one or two new technologies become available: the in-situ 
oil shale approaches being pursued by several firms and the F-T 
approaches for converting biomass or a combination of coal and biomass 
to liquid fuels. We have also looked carefully at the development 
prospects for technologies that are intended to produce alcohol fuels 
from sources other than food crops, generally referred to as cellulosic 
materials. Our finding is that, while this is an important area for 
research and development, the technology base is not yet sufficiently 
developed to support an assessment that alcohol production from 
cellulosic materials will be competitive with F-T biomass-to-liquid 
fuels within the next 10 years, if ever.

The Strategic Benefits of Coal-to-Liquids Production

    Our research is also addressing the strategic benefits of having in 
place a mature coal-to-liquid fuels industry producing several million 
barrels of oil per day. If coal-derived liquids were added to the world 
oil market, such additional liquid fuel supplies would cause world oil 
prices to be lower than they would be if these additional supplies were 
not produced. This effect occurs regardless of what fuel is being 
considered. It holds for coal-derived liquids and for oil shale, heavy 
oils, tar sands, and biomass-derived liquids, as well as, for that 
matter, additional supplies of conventional petroleum. The price-
reduction effect also occurs when oil demand is reduced through fiscal 
measures, such as taxes on oil, or through the introduction of advanced 
technologies that use less petroleum, such as higher efficiency 
vehicles. Moreover, this reduction in world oil prices is independent 
of where such additional production or energy conservation occurs, as 
long as the additional production is outside of OPEC and OPEC-
cooperating nations.
    In a 2005 analysis of the strategic benefits of oil shale 
development, RAND estimated that three million barrels per day of 
additional liquid-fuel production would yield a world oil price drop of 
between three and five percent.\2\ Our ongoing research supports that 
estimated range and shows that the price drop increases in proportion 
to production increases. For instance, an increase of six million 
barrels per day would likely yield a world oil price drop of between 
six and 10 percent. This more recent research also shows that even 
larger price reductions may occur in situations in which oil markets 
are particularly tight or in which OPEC is unable to enforce a profit-
optimizing response among its members.
---------------------------------------------------------------------------
    \2\ Oil Shale Development in the United States: Prospects and 
Policy Issues, Bartis et al., Santa Monica, Calif.: RAND Corporation, 
MG-414-NETL, 2005.
---------------------------------------------------------------------------
    This anticipated reduction in world oil prices yields important 
economic benefits. In particular, U.S. consumers would pay tens of 
billions of dollars less for oil or, under some future situations, 
hundreds of billions of dollars less for oil per year. On a per-
household basis, we estimate that the average annual benefit could 
range from a few hundred to a few thousand dollars.
    Further, this anticipated reduction in world oil prices also yields 
a major national security benefit. At present, OPEC revenues from oil 
exports are about $700 billion per year. Projections of future 
petroleum supply and demand published by the U.S. Department of Energy 
indicate that, unless measures are taken to reduce the prices of, and 
demand for, OPEC petroleum, such revenues will grow considerably. These 
high revenues raise serious national security concerns, because some 
OPEC member nations are governed by regimes that are not supportive of 
U.S. foreign policy objectives. Income from petroleum exports has been 
used by unfriendly nations, such as Iran and Iraq under Saddam Hussein, 
to support weapon purchases or to develop their own industrial base for 
munitions manufacture. Also, the higher prices rise, the greater the 
chances that oil-importing countries will pursue special relationships 
with oil exporters and defer joining the United States in multilateral 
diplomatic efforts.
    Our research shows that developing an unconventional fuels industry 
that displaces millions of barrels of petroleum per day will cause a 
significant decrease in OPEC revenues from oil exports. This decrease 
results from a combination of lower prices and a lower demand for OPEC 
production. The size of this reduction in OPEC revenues is determined 
by the volume of unconventional fuels produced and future market 
conditions, but our ongoing research indicates that expectations of 
annual reductions of hundreds of billions of dollars are not 
unreasonable. The significant reduction in wealth transfers to OPEC and 
the geopolitical consequences of reduced demand for OPEC oil represent 
the major national security benefits associated with the development of 
an unconventional liquid fuels production industry. Note that these 
revenue reductions would affect all petroleum exporters, both friends 
and foes.
    These strategic benefits derive from the existence of the OPEC 
cartel. The favorable benefits of reduced oil prices accrue to 
consumers and the Nation as a whole; however, the private firms that 
would invest in coal-to-liquids development do not capture those 
benefits.

The Direct Benefits of Coal-to-Liquids Production

    Beyond the strategic benefits for the Nation associated with coal-
to-liquids production are certain direct benefits. If coal-derived 
liquid fuels can be produced at prices well below world oil prices, 
then the private firms that invest in coal-derived liquid fuels 
development could garner economic profits above and beyond what is 
considered a normal return on their investments. Through taxes on these 
profits and, in some cases, lease and royalty payments, we estimate 
that roughly 35 percent of these economic profits could go to Federal, 
State, and local governments and, thereby, broadly benefit the public.
    An auxiliary benefit of coal-to-liquids development derives from 
the broad regional dispersion of the U.S. coal resource base and the 
fact that coal-to-liquids plants are able to produce finished motor 
fuels that are ready for retail distribution. As such, developing a 
coal-to-liquids industry should increase the resiliency of the overall 
petroleum supply chain.
    The remaining benefits of developing a coal-to-liquids production 
industry are local or regional, as opposed to national. In particular, 
coal-to-liquids industrial development offers significant opportunities 
for economic development and would increase employment in coal-rich 
states.

Greenhouse Gas Emissions

    While the strategic benefits of the development of a domestic coal-
to-liquids industry are compelling, no less pressing is the importance 
of addressing the threat of global climate change. Specifically, 
without measures to address carbon dioxide emissions, the use of coal-
derived liquids to displace petroleum fuels for transportation will 
roughly double greenhouse gas emissions.
    This finding is relevant to the total fuel life cycle, i.e., well-
to-wheels or coal mine-to-wheels. This increase in greenhouse gas 
emissions is primarily attributable to the large amount of carbon 
dioxide emissions that come from an F-T coal-to-liquids production 
plant relative to a conventional oil refinery. In fact, looking solely 
at the combustion of F-T-derived fuel as opposed to its production, our 
analyses show that combustion of an F-T, coal-derived fuel would 
produce somewhat, although not significantly, lower greenhouse gas 
emissions than would the combustion of a gasoline or diesel motor fuel 
prepared by refining petroleum.
    In our judgment, the high greenhouse gas emissions of F-T coal-to-
liquids plants that do not manage such emissions preclude their 
widespread use as a means of displacing imported petroleum. We now turn 
to some options for managing greenhouse gas emissions.

Options for Managing Greenhouse Gas Emissions

    For managing greenhouse gas emissions for F-T coal-to-liquids 
plants, we have examined three options: (1) carbon capture and 
sequestration, (2) carbon dioxide capture and use in enhanced oil 
recovery, and (3) gasification of both coal and biomass followed by F-T 
synthesis of liquid fuels. We discuss each below in turn.

Carbon Capture and Sequestration: By carbon capture and sequestration, 
I refer to technical approaches being developed in the United States, 
primarily through funding from the U.S. Department of Energy, and 
abroad that are designed to capture carbon dioxide produced in coal-
fired power plants and to sequester that carbon dioxide in various 
types of geological formations, such as deep saline aquifers. This same 
approach can be used to capture and sequester carbon dioxide emissions 
from F-T coal-to-liquids plants and from F-T plants operating on 
biomass or a combination of coal and biomass. When applied to F-T coal-
to-liquids plants, carbon capture and sequestration should cause mine-
to-wheels greenhouse gas emissions to drop to levels comparable to the 
well-to-wheels emissions associated with conventional, petroleum-
derived motor fuels. Most importantly, our research indicates that any 
incentive adequate to promote carbon capture at coal-fired power plants 
should be even more effective in promoting carbon capture at F-T plants 
producing liquid fuels.
    The U.S. Department of Energy program on carbon capture and 
sequestration has made considerable technical progress. However, 
considering the continued and growing importance of coal for both power 
and liquids production and the potential adverse impacts of greenhouse 
gas emissions, we believe that current funding levels are not adequate. 
While we are optimistic that carbon capture and geologic sequestration 
can be successfully developed as a viable approach for carbon 
management, we also recognize that successful development constitutes a 
major technical challenge and that the road to success requires 
multiple, large-scale demonstrations that go well beyond the current 
U.S. Department of Energy plans and budget for the efforts that are now 
under way.

Carbon Capture and Enhanced Oil Recovery: In coal-to-liquids plants, 
about 0.8 tons of carbon dioxide are produced along with each barrel of 
liquid fuel. For coal-to-liquids plants located near currently 
producing oil fields, this carbon dioxide can be used to drive 
additional oil recovery. We anticipate that each ton of carbon dioxide 
applied to enhanced oil recovery will cause the additional production 
of two to three barrels of oil, although this ratio depends highly on 
reservoir properties and oil prices. Based on recent studies sponsored 
by the U.S. Department of Energy, opportunities for enhanced oil 
recovery provide carbon management options for at least half a million 
barrels per year of coal-to-liquids production capacity. A favorable 
collateral consequence of this approach to carbon management is that 
half a million barrels per day of coal-to-liquids production will 
promote additional domestic petroleum production of roughly one million 
barrels per day.
    The use of pressurized carbon dioxide for enhanced oil recovery is 
a well-established practice in the petroleum industry. Technology for 
capturing carbon dioxide at a coal-to-liquids plant is also well 
established, although further R&D may yield cost reductions. There are 
no technical risks, but questions do remain about methods to optimize 
the fraction of carbon dioxide that would be permanently sequestered.

Combined Gasification of Coal and Biomass: Non-food-crop biomass 
resources suitable as feedstocks for F-T biomass-to-liquid production 
plants include mixed prairie grasses, switchgrass, corn stover and 
other crop residues, forest residues, and crops that might be grown on 
dedicated energy plantations. When such biomass resources are used to 
produce liquids through the F-T method, our research shows that 
greenhouse gas emissions should be well below those associated with the 
use of conventional petroleum fuels. Moreover, when a combination of 
coal and biomass is used, for example, a 40-60 mix, we estimate that 
net carbon dioxide emissions will be comparable to or, likelier, lower 
than well-to-wheels emissions of conventional, petroleum-derived motor 
fuels. Finally, we have examined liquid fuel production concepts in 
which carbon capture and sequestration is combined with the combined 
gasification of coal and biomass. Our preliminary estimate is that a 
50-50 coal-biomass mix combined with carbon capture and sequestration 
should yield negative carbon dioxide emissions. Negative emissions 
imply that the net result of producing and using the fuel would be the 
removal of carbon dioxide from the atmosphere.
    One perspective on the combined gasification of coal and biomass is 
that biomass enables F-T coal-to-liquids production, in that the 
combined feedstock approach provides an immediate pathway to 
unconventional liquids with no net increase in greenhouse gas 
emissions, and an ultimate vision, with carbon capture and 
sequestration, of zero net emissions. Another perspective is that coal 
enables F-T biomass-to-liquids production, in that the combined 
approach reduces overall production costs by reducing fuel delivery 
costs, allowing larger plants that take advantage of economies of 
scale, and smoothing over the inevitable fluctuations in biomass 
availability associated with annual and multi-year fluctuations in 
weather patterns, especially rainfall.

Prospects for a Commercial Coal-to-Liquids Industry

    The prospects for a commercial coal-to-liquids industry in the 
United States remain unclear. Three major impediments block the way 
forward:

        1.  Uncertainty about the costs and performance of coal-to-
        liquids plants;

        2.  Uncertainty about the future course of world oil prices; 
        and

        3.  Uncertainty about whether and how greenhouse gas emissions, 
        especially carbon dioxide emissions, might be controlled in the 
        United States.

    As part of our ongoing work, RAND researchers have met with firms 
that are promoting coal-to-liquids development or that clearly have the 
management, financial, and technical capabilities to play a leading 
role in developing of a commercial industry. Our findings are that 
these three uncertainties are impeding and will continue to impede 
private-sector investment in a coal-to-liquids industry unless the 
government provides fairly significant financial incentives, especially 
incentives that mitigate the risks of a fall in world oil prices.
    But just as these three uncertainties are impeding private-sector 
investment, they should also deter an immediate national commitment to 
establish rapidly a multi-million-barrel-per-day coal-to-liquids 
industry. However, the traditional hands-off or ``research-only'' 
approach is not commensurate with continuing adverse economic, national 
security, and global environmental consequences of relying on imported 
petroleum. For this reason, Congress should consider a middle path to 
developing a coal-to-liquids industry that focuses on reducing 
uncertainties and fostering early operating experience by promoting the 
construction and operation of a limited number of commercial-scale 
plants. We consider this approach an ``insurance strategy,'' in that it 
is an affordable approach that significantly improves the national 
capability to build a domestic unconventional-fuels industry as 
government and industry learn more about the future course of world oil 
prices and as the policy and technical mechanisms for carbon management 
become clearer.
    Designing, building, and gaining early operating experience from a 
few coal-to-liquids plants would reduce the cost and performance 
uncertainties that currently impede private-sector investments. At 
present, the knowledge base for coal-to-liquids plant construction 
costs and environmental performance is very limited. Our current best 
estimate is that coal-to-liquids production from large, first-of-a-kind 
commercial plants is competitive when crude oil prices average in the 
range of $50 to $60 per barrel. However, this estimate is based on 
highly conceptual engineering design analyses that are intended only to 
provide rough estimates of costs. At RAND, we have learned that, when 
it comes to cost estimates, typically the less you know, the more 
attractive the costs. Details are important, and they are not yet 
available. For this reason, we believe that it is essential that the 
Department of Energy and Congress have access to the more reliable 
costing that is generally associated with the completion of a more 
comprehensive design effort, generally known as a ``front-end 
engineering design.''
    Early operating experience would promote post-production learning, 
leading to future plants with lower costs and improved performance. 
Post-production cost improvement--sometimes called the learning curve--
plays a crucial role in the chemical process industry, and we 
anticipate that this effect will eventually result in a major reduction 
of the costs of coal-derived liquid fuels. Most important, by reducing 
cost and performance uncertainties and production costs, a small number 
of early plants could form the basis for a rapid expansion by the 
private sector of a more economically competitive coal-to-liquids 
industry, depending on future developments in world oil markets.

Options for Federal Action

    The Federal Government could take several productive measures to 
address the three major uncertainties we have noted--production risks, 
market risks, and global warming--so that industry can move forward 
with a limited commercial production program consistent with an 
insurance strategy. A key step, as noted, is reducing uncertainties 
about plant costs and performance by encouraging the design, 
construction, and operation of a few coal-to-liquids plants. An 
engineering design adequate to obtain a confident estimate of costs, to 
establish environmental performance, and to support federal, State, and 
local permitting requirements will cost roughly $30 million. The 
Federal Government should consider cost-sharing options that would 
promote the development of a few site-specific designs. The information 
from such efforts would also provide Congress with a much stronger 
basis for designing broader measures to promote unconventional-fuel 
development.
    We have analyzed alternative incentive packages for promoting early 
commercial operating experience. In this analysis of incentives, we 
have examined not only the extent to which the incentive motivates 
private-sector investment but also the potential impact on federal 
expenditures over a broad range of potential future outcomes. At this 
time, we are able to report that more attractive incentive packages 
generally involve a combination of the following three mechanisms: (1) 
a reduction in front-end investment costs, such as what would be 
offered by an investment tax credit; (2) a reduction in downside risks 
by a floor price guarantee; and (3) a sharing of upside benefits such 
as what would be offered by a profit-sharing agreement between the 
government and producers when oil prices are high enough to justify 
such sharing.
    We also find that federal loan guarantees can have powerful 
effects, mainly because they allow the share of debt supporting the 
project to increase, since the government is assuming the risk of 
project default. For this very reason, we caution against the use of 
federal loan guarantees unless Congress is confident that the Federal 
Government is able to put in place a technical and financial project 
monitoring and control system capable of protecting the federal purse.

R&D Opportunities

    A great benefit of the F-T approach to liquid fuel development is 
that we know it works. F-T fuels are being produced today using both 
coal and natural gas in South Africa and using natural gas in Malaysia 
and Qatar. F-T fuels or blends of F-T and conventional petroleum 
products are in commercial use. Their suitability for use in vehicles 
and commercial aviation has been established. The R&D challenge for 
coal-to-liquids development is not how to use but rather how to produce 
these fuels in a manner that is consistent with our national 
environmental objectives.
    If the Federal Government is prepared to promote early production 
experience, then expanded federal R&D efforts are needed. Most 
important, consideration should be given to accelerating the 
development and testing (including large-scale testing) of methods for 
the long-term sequestration of carbon dioxide. This could involve using 
one or more of the early coal-to-liquids production plants as a source 
of carbon dioxide for the testing of sequestration options.
    At present, the Federal Government is supporting research on coal 
gasification and associated synthesis gas cleaning and treatment 
processes. All of this federally funded research is directed at nearer-
term, lower-risk concepts for advanced power generation and the 
production of hydrogen, but much of it is also directly applicable to 
F-T coal-to-liquids production.
    Missing from the federal R&D portfolio are near-term efforts to 
establish the commercial viability of a few techniques for the combined 
use of coal and biomass. Such a combination offers significant cost and 
environmental payoffs. The most pressing near-term research need 
centers on developing an integrated gasification system capable of 
handling both biomass and coal. The problem is to devise a system that 
grinds, pressurizes, and feeds a stream of biomass or a combination of 
biomass and coal into the gasifier with high reliability and efficiency 
and without damaging the gasifier. This is a fairly minor technical 
challenge. It is an engineering problem focusing on performance and 
reliability, not a science problem. To establish the design basis for 
such a system requires the design, construction, and operation of one 
or a few test rigs. These test rigs need to be fairly large so that 
they are handling flows close to what would be the case in a commercial 
plant. This is because solids are involved, and it is very difficult to 
predict performance and reliability of solids-handling and processing 
systems when the size or throughput of the system undergoes a large 
increase. Such large-scale testing could also be conducted during the 
design and construction of a full-scale plant for coal-to-liquids 
production, with the understanding that, if this were successfully 
demonstrated, the plant would convert to accept a mixture of coal and 
biomass.
    In my judgment, the current federal portfolio on gasification 
systems does not give adequate support to mid- and long-term R&D 
directed at high-risk, high-payoff opportunities for cost reduction and 
improved efficiency and environmental performance. Especially fruitful 
areas for R&D are oxygen production at reduced energy consumption, 
improved gas-gas separation technology, higher-temperature gas-
purification systems, and reduced or eliminated oxygen demand during 
gasification. I also suggest research directed at advanced F-T process 
concepts that allow efficient liquid-fuels production at small scales, 
i.e., at a few thousand barrels per day, not tens of thousands. Very 
large F-T coal-to-liquids plants may be suitable for Wyoming and 
Montana, but east of the Mississippi, much smaller plants may be more 
appropriate.
    In promoting the production of alcohol fuels from cellulosic 
feedstocks, the Federal Government is making major R&D investments. In 
our judgment, the appropriate approach to balance this fuels-production 
portfolio is not to lower the investment in cellulosic conversion, but 
rather to significantly increase the investment in F-T approaches, 
including coal, biomass, and combined coal and biomass gasification.
    The long- and mid-term research efforts that I have described would 
significantly enhance the learning and cost-reduction potential 
associated with early production experience. As a collateral benefit of 
this public investment, such longer-term research efforts would also 
support the training of specialized scientific and engineering talent 
required for long-term progress.
    In closing, I commend the Committee for addressing the important 
and intertwined topics of reducing demand for crude oil and reducing 
greenhouse gas emissions. The United States has before it many 
opportunities--including coal and oil shale, renewable sources, 
improved energy efficiency, and fiscal and regulatory actions--that can 
promote greater energy security. Coal-to-liquids and, more generally, 
F-T gasification processes can be important parts of the portfolio as 
the Nation responds to the realities of world energy markets, the 
presence of growing energy demand, and the need to protect the 
environment.

                     Biography for James T. Bartis

    James T. Bartis, Ph.D. is a senior policy researcher with more than 
25 years of experience in policy analyses and technical assessments in 
energy and national security. He is currently finishing up a study of 
the policy issues associated with the development of a coal-to-liquids 
industry in the United States. Recent energy research topics include 
oil shale development prospects, Qatar's natural gas-to-diesel plants, 
Japan's energy policies, planning methods for long-range energy R&D, 
critical mining technologies, fuel cell development options, and 
national response options during international energy emergencies.
    Jim has been working with the RAND Corporation since 1997. He is 
located at RAND's Arlington, Virginia office. Prior to joining RAND, he 
worked as a Vice President and Division Director for Science 
Applications International Corporation, and earlier as Vice President 
of Eos Technologies.
    From 1978 through 1982, he was a member of the U.S. Department of 
Energy, serving in the in the Office of Energy Research (technical 
policy analyst), the Office of Fossil Energy (Director, Office of Plans 
and Technology Assessment), and Office of Policy and Evaluation 
(Director, Divisions of Fossil Energy and Environment). During the Bush 
and Clinton Administrations, he served on the Industry Sector Advisory 
Committee (U.S. Department of Commerce and U.S. Trade Representative) 
on Energy for Trade Policy Matters.
    Jim is a graduate of Brown University and holds a Ph.D. granted by 
MIT.

    Chairman Lampson. Thank you very much.
    Mr. Hawkins.

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

    Dr. Hawkins. Thank you, Mr. Chairman, Members of the 
Subcommittee. Thank you for inviting me to testify today.
    As has already been noted by several Members and by the 
witnesses, we are facing as a nation, indeed as a planet, two 
large and growing threats; oil dependence and global warming. 
It is critical that we address these together in designing 
strategies for energy and environmental protection.
    Now, the supporters of coal-to-liquids technology claim 
that the fuel can both reduce oil dependence and can have 
greenhouse gas emissions that are as good or better than the 
petroleum products that they replace. Well, those are claims, 
and this is the Science and Technology Committee, and good 
science requires that the claims be analyzed.
    The problem is that these claims have not had the scrutiny 
that is required given the attention that Congress has been 
paying to this matter. Certainly, the objective analysis of the 
total life cycle impacts of this approach of coal-to-liquids to 
addressing these twin problems compared to other alternatives 
have not been presented to Congress, and they are certainly no 
basis for the mandates and incentives that have been fuel-
specific that have been voted on in both bodies of Congress, 
fortunately neither has been enacted fortunately in our view.
    Because to do so would be making a mistake, given the lack 
of analysis that has been provided about the merits of this 
approach compared to others. So let us take a look at a number 
of these issues in the time that I have.
    First, as to greenhouse gas emissions, the most 
authoritative analysis by the Argonne National Labs indicates 
that without carbon capture, coal-to-liquids will produce more 
than twice the well-to-wheels greenhouse gas emissions of 
diesel fuel, and even with 85 percent capture of carbon from a 
coal-to-liquids plant, the resulting emissions will still be 
about 20 percent greater than conventional diesel fuel.
    Now, let us compare this to alternative ways of using coal 
to back out oil, because there are alternative ways. One of 
them is with plug-in hybrid vehicles. We can have coal, turn it 
into electricity. If we do that in a modern plant that is 
equipped with carbon capture and storage, we can back out about 
twice as many barrels of oil per ton of coal as compared to the 
coal-to-liquids technology, and we can do it with one-tenth the 
greenhouse gas emissions. These are facts that haven't been 
presented to the Congress, and it ought to be evaluated before 
we move forward with what is likely to be a sub-optimal 
approach.
    The problems that I want to turn to next are problems of 
scale. In order to make a difference on oil security, a coal-
to-liquids industry has to be huge. In order to cut coal, oil 
consumption projected for 2025 by 10 percent, that requires 
something on the order of 470 million tons of additional 
coalmining in this country. That is a 43 percent increase in 
today's level of coalmining. Unfortunately, today's level of 
coalmining is associated with a lot of environmental damage. We 
need reform of our coalmining practices before we contemplate 
that magnitude of an increase in coal production.
    The water use is another issue, and I believe that Dr. 
Boardman will address it, but water use for coal-to-liquids 
technology is large indeed, perhaps as high as 12 gallons for 
every gallon of fuel produced.
    Then there is the impact on the coal market itself. 
Congressman Bartlett's opening statement notes that the reserve 
estimates for coal, while apparently large, are themselves 
uncertain. And if we increase coal production in order to back 
out oil through the liquid coal market, the impacts on 
recoverable reserves could be profound. In my testimony I point 
out that if we tried to back out just one-third of oil imports 
starting in 2030, that by 2050, 40 percent of today's estimated 
recoverable coal reserves would be gone, and by 2080, they 
would all be gone. If we tried to do more than one-third of oil 
imports, then the impacts would be that much greater.
    There is also the impact of carbon capture and storage. 
This technology would add a large new demand for reservoir 
space, and as Dr. Bartis had noticed, has noticed, we already 
will have a challenge with deploying carbon capture technology 
for the electric power sector. So we need to think about that.
    In conclusion, let me make a recommendation. Rather than 
mandate a fuel-specific approach or adopt incentives for a 
fuel-specific approach, we need a fuel-neutral approach. We 
should have incentives and performance standards that reward 
entrepreneurs who deliver alternatives to oil that do the best 
job at backing out oil and do the best job at cutting 
greenhouse gas emissions. And that is the approach that we 
recommend.
    Thank you.
    [The prepared statement of Dr. Hawkins follows:]

                 Prepared Statement of David G. Hawkins

    Thank you for the opportunity to testify today on the subject of 
producing liquid fuels from coal. 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, Chicago and 
Beijing, China.
    Today's energy use patterns are responsible for two growing 
problems that require action now to keep them from spiraling out of 
control--oil dependence and global warming. Both are serious but most 
important, both problems must be addressed together. Designing 
strategies that address only oil dependence and ignore global warming 
would be a huge and costly mistake.
    Proposals to use coal to make liquid fuels for transportation need 
to be evaluated in the context of the compelling need to reduce global 
warming emissions starting now and proceeding continuously 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 critical to examine the implications 
of a substantial liquid coal program on these values as well. The first 
role for federal research should be to identify through comprehensive 
studies the types of vehicles and fuels that hold the best promise of 
reducing both oil dependence and global warming pollution by the 
amounts required to preserve a climate that allows us and others to 
achieve our environmental, economic and security objectives.

Reducing oil dependence

    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 and its industry allies are seeking government subsidies to 
create a coal to synfuels industry as large as 2.6 million barrels per 
day of liquid fuel from coal by 2025, about 10 percent of forecasted 
oil demand in that year. According to the industry, using coal to 
produce that much synfuel would require construction of 33 very large 
liquid coal 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 percent above 
today's level.\1\
---------------------------------------------------------------------------
    \1\ The coal industry's program is set forth in a March 2006 
National Coal Council report, Coal: America's Energy Future. The 
industry's full ``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.
---------------------------------------------------------------------------
    In this testimony I will not attempt a thorough analysis of the 
impacts of a program of this scale. Rather, I will highlight the issues 
that should be addressed in a detailed assessment.

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 global greenhouse 
gas emissions need to be cut in half from today's levels by 2050. To 
accommodate unavoidable increases in emissions from developing 
countries this will require industrialized countries, including the 
U.S., to cut emissions by about 80 percent from today's levels between 
now and 2050.
    Achieving emissions reductions of this scale in the U.S. will 
require deep reductions in all sectors, especially in the power 
generation and transportation sectors, which together account for over 
two-thirds of U.S. carbon dioxide (CO2) emissions. Achieving 
large reductions in transportation emissions will require action on 
three fronts: improved vehicles; lower carbon fuels; and smarter 
metropolitan area planning to reduce congestion and growth in vehicle 
miles. This is the frame we must have in mind in evaluating the 
viability of alternative fuels for the transportation sector. The fuel 
industry we build must be capable of producing fuels that contain 
substantially less fossil carbon than is in today's petroleum-based 
gasoline and diesel fuel. To help achieve the overall reductions we 
need by 2050 will require transportation fuels with 50-80 percent lower 
fossil carbon emission potential than today's fuels.
    To assess the global warming implications of a large liquid coal 
program we need to examine the total life cycle or ``well-to-wheel'' 
emissions of this type of synfuel. Coal is a carbon-intensive fuel, 
containing double the amount of carbon per unit of energy compared to 
natural gas and about 50 percent more than petroleum. When coal is 
converted to liquid fuels, two streams of CO2 are produced: 
one at the liquid coal production plant and the second from the 
exhausts of the vehicles that burn the fuel. As I describe below, even 
if the CO2 from the synfuel production plant is captured, 
there is no prospect that liquid fuel made with coal as the sole 
feedstock can achieve the significant reductions in fossil carbon 
content that we need to protect the climate.
    Two authoritative recent studies conclude that even if liquid coal 
synfuels plants fully employ carbon capture and storage, full life 
cycle greenhouse gas emissions from using these fuels will be worse 
than conventional diesel fuel. There is a straightforward reason for 
this. Vehicle tailpipe CO2 emissions from using liquid coal 
would be nearly identical to those from using conventional diesel fuel. 
Any CO2 emissions released from the synfuels production 
facility have to be added to the tailpipe emissions. The residual 
emissions from a liquid coal plant employing CO2 capture and 
geologic storage (CCS) are still somewhat higher than emissions from a 
petroleum refinery, hence life cycle emissions are higher.
    EPA's April 2007 analysis of life cycle greenhouse gas emissions of 
different fuels was released in conjunction with publishing its final 
rule to implement the Renewable Fuels Standard enacted in the Energy 
Policy Act of 2005. EPA's analysis finds that without carbon capture 
life cycle greenhouse gas emissions from coal-to-liquid fuels would be 
more than twice as high as from conventional diesel fuel (118 percent 
higher). Assuming carbon capture and storage EPA finds that life cycle 
greenhouse gas emissions from coal-to-liquid fuels would be 3.7 percent 
higher than from conventional diesel fuel.\2\
---------------------------------------------------------------------------
    \2\ http://www.epa.gov/otaq/renewablefuels/420f07035.htm
---------------------------------------------------------------------------
    In May 2007 Michael Wang of Argonne National Laboratory, the 
developer of the most widely used transportation fuels life cycle 
emissions model, presented the results of his more detailed analysis of 
liquid coal fuels to the Society of Automotive Engineers conference. 
The Argonne analysis shows that liquid coal fuels could have life cycle 
greenhouse gas emissions as much as 2.5 times those from conventional 
diesel fuel. Even assuming a high-efficiency liquid coal conversion 
process and 85 percent carbon capture and storage, Argonne finds that 
life cycle greenhouse gas emissions from liquid coal fuel would still 
be 19 percent higher than from conventional diesel fuel (Figure 1).\3\
---------------------------------------------------------------------------
    \3\ M. Wang, M. Wu, H. Huo, ``Life cycle energy and greenhouse gas 
results of Fischer-Tropsch diesel produced from natural gas, coal,, and 
biomass,'' Center for Transportation Research, Argonne National 
Laboratory, presented at 2007 SAE Government/Industry meeting, 
Washington, DC, May 2007.



    These analyses show that using coal to produce a significant amount 
of liquid synfuel for transportation conflicts with the need to develop 
a low-CO2 emitting transportation sector. The unavoidable 
fact is that liquid fuel made from coal contains essentially the same 
amount of carbon as is in gasoline or diesel made from petroleum. Given 
these results, it is not surprising that a recent Battelle study found 
that a significant coal-to-liquids industry is not compatible with 
stabilizing atmospheric CO2 concentrations below twice the 
pre-industrial value. Battelle found that if there is no constraint on 
CO2 emissions conventional petroleum would be increasingly 
replaced with liquid coal, but that in scenarios in which CO2 
concentrations are limited to 550 ppm or below, petroleum fuels are 
replaced with biofuels rather than liquid coal (Figure 2).\4\
---------------------------------------------------------------------------
    \4\ J. Dooley, R. Dahowski, M. Wise, and C. Davidson, ``Coal-to-
Liquids and Advanced Low-Emissions Coal-fired Electricity Generation: 
Two Very Large and Potentially Competing Demands for US Geologic 
CO2 Storage Capacity before the Middle of the Century.'' 
Battelle PNWD-SA-7804. Presented to the NETL Conference, May 9, 2007.
---------------------------------------------------------------------------
    Proceeding with liquid coal plants now could leave those 
investments stranded or impose unnecessarily high abatement costs on 
the economy if the plants continue to operate.



Plug-in Hybrid Electric Vehicles
    While NRDC believes there are better alternatives than using coal 
to replace gasoline, it is worth noting that making liquid fuels from 
coal is far less efficient and dirtier even than burning coal to 
generate electricity for use in plug-in hybrid vehicles (PHEVs). In 
fact, a ton of coal used to generate electricity used in a PHEV will 
displace about twice as much oil as using the same amount of coal to 
make liquid fuels, even using optimistic assumptions about the 
conversion efficiency of liquid coal plants.\5\ The difference in 
CO2 emissions is even more dramatic. Liquid coal produced 
with CCS and used in a hybrid vehicle would still result in life cycle 
greenhouse gas emissions of approximately 330 grams/mile, or ten times 
as much as the 33 grams/mile that could be achieve by a PHEV operating 
on electricity generated in a coal-fired power plant equipped with 
CCS.\6\
---------------------------------------------------------------------------
    \5\ Assumes production of 84 gallons of liquid fuel per ton of 
coal, based on the National Coal Council report. Vehicle efficiency is 
assumed to be 37.1 miles/gallon on liquid fuel and 3.14 miles/kWh on 
electricity.
    \6\ Assumes life cycle greenhouse gas emission from liquid coal of 
27.3 lbs/gallon and life cycle greenhouse gas emissions from an IGCC 
power plant with CCS of 106 grams/kWh, based on R. Williams et al., 
paper presented to GHGT-8 Conference, June 2006.
---------------------------------------------------------------------------

Coal and Biomass?

    Some have proposed that a mixture of coal and biomass could be used 
to produce liquid fuel with a reduction in greenhouse gas emissions 
compared to today's fuels, assuming a high fraction of the CO2 
from the production plant is captured and permanently isolated in 
geologic formations. Proponents of this concept argue that using such a 
mixture of feedstocks to make liquid fuel could be compatible with 
cutting global warming emissions. It is important to recognize that 
such a combination does not actually reduce the emissions related to 
using coal; rather, the biomass component of the combination actually 
has negative net emissions that are deducted from the coal-related 
emissions to obtain low net emissions from the mixture. Moreover, even 
if the technical and economic challenges of making fuels with such a 
mixture could be met, a coal-biomass approach would still result in 
large amounts of additional coal mining and water requirements. With 
today's mining practices, mountaintop removal mining being the most 
egregious, launching a new fuel industry that depends on massive 
amounts of new mining without reform of our current practices would be 
a recipe for widespread environmental damage. As I discuss below, 
competition for water and even for low-cost coal supplies and geologic 
CO2 storage reservoirs are additional factors that must be 
analyzed before we can conclude that any significant use of coal for 
liquid fuels would be viable. Federal research could support such 
analyses. If Congress is going to legislate on the subject of liquid 
coal, the only responsible action now is to require a comprehensive 
comparative assessment of the full life cycle impacts and resource 
requirements of alternative approaches to reducing dependence on 
petroleum.

Conventional Pollution

    Liquid coal fuel itself is expected to result in reduced emissions 
of conventional pollutants from vehicle exhausts. However, the same may 
not be true for liquid coal production plants. Conventional air 
emissions from liquid coal 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 liquid coal plants in South Africa demonstrates that 
liquid coal 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, liquid coal plants.\7\
---------------------------------------------------------------------------
    \7\ The sulfur and nitrogen caps in EPA's ``Clean Air Interstate 
Rule'' (``CAIR'') may cover emissions from liquid coal 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 liquid coal plants.
---------------------------------------------------------------------------
    Thus, we cannot say today that liquid coal 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. The 
industry's liquid coal vision advocates another 475 billion tons of 
coal production. To understand the implications of such an enormous 
expansion of 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.\8\ The industry had a low of 22 fatalities in 2005 
but in 2006 there were 47 deaths.\9\ Fatalities to date in 2007 are 
17.\10\ 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.\11\
---------------------------------------------------------------------------
    \8\ Congressional Research Service, U.S. Coal: A Primer on the 
Major Issues, at 30 (Mar. 25, 2003).
    \9\ U.S. Department of Labor, Mine Safety and Health 
Administration, Coal Daily Fatality Report, http://www.msha.gov/stats/
charts/coaldaily.asp, (visited September 1, 2007)
    \10\ Id.
    \11\ http://www.umwa.org/blacklung/blacklung.shtml
---------------------------------------------------------------------------

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,\12\ for example, which produces over 35 
percent of our nation's coal,\13\ is one of the most biologically 
diverse forested regions in the country. But during surface mining 
activities, trees are clear-cut 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 bio-diversity 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.
---------------------------------------------------------------------------
    \12\ Alabama, Georgia, Eastern Kentucky, Maryland, North Carolina, 
Ohio, Pennsylvania, Tennessee, Virginia, and West Virginia.
    \13\ Energy Information Administration. Annual Coal Report, 2004.
---------------------------------------------------------------------------
    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\14\ and 
lower species diversity\15\ 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.\16\ 
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.\17\
---------------------------------------------------------------------------
    \14\ Sencindiver, et al. ``Soil Health of Mountaintop Removal Mines 
in Southern West Virginia''. 2001.
    \15\ Handel, Steven. Mountaintop Removal Mining/Valley Fill 
Environmental Impact Statement Technical Study, Project Report for 
Terrestrial Studies. October, 2002.
    \16\ Id.
    \17\ EPA. Mountaintop Mining/Valley Fills in Appalachia: Draft 
Programmatic Environmental Impact Statement. 2003.
---------------------------------------------------------------------------
    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.\18\ 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.
---------------------------------------------------------------------------
    \18\ Julian Martin, West Virginia Highlands Conservancy, Personal 
Communication, February 2, 2006.
---------------------------------------------------------------------------
    The terrestrial impacts of coal mining in the Appalachian region 
are considerable, but for sheer size of the acreage affected, impacts 
in the western United States dominate the picture.\19\ As of September 
30, 2004, 470,000 acres were under federal coal leases or other 
authorizations to mine.\20\ 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.\21\ 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.\22\ 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.\23\
---------------------------------------------------------------------------
    \19\ Alaska, Arizona, Colorado, Montana, New Mexico, North Dakota, 
Utah, Washington, and Wyoming.
    \20\ Bureau of Land Management, Public Land Statistics 2004, Table 
3-18.
    \21\ 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.
    \22\ Bureau of Land Management. 3809 Surface Management 
Regulations, Draft Environmental Impact Statement. 1999.
    \23\ National Park Service, DOI. ``Coal Development Overview.'' 
2003.
---------------------------------------------------------------------------
    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. 
Studies estimate that over 700 miles of streams were buried by valley 
fills from 1985-2001, and 1,200 miles were directly impacted by 
mountaintop removal and valley fills from 1992-2002.\24\ 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.\25\
---------------------------------------------------------------------------
    \24\ EPA. Mountaintop Mining/Valley Fills in Appalachia: Draft 
Programmatic Environmental Impact Statement.
    \25\ Id.
---------------------------------------------------------------------------
    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.\26\
---------------------------------------------------------------------------
    \26\ Keating, Martha. ``Cradle to Grave: The Environmental Impacts 
from Coal.'' Clean Air Task Force, Boston. June, 2001.
---------------------------------------------------------------------------
    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.\27\ 
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.\28\ In the eastern U.S., 
estimates of the damage from AMD range from four to eleven thousand 
miles of streams.\29\ 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.\30\ AMD is costly to mitigate, requiring over $40 million 
annually in Kentucky, Tennessee, Virginia, and West Virginia alone.\31\
---------------------------------------------------------------------------
    \27\ EPA Office of Solid Waste: Acid Mine Drainage Prediction 
Technical Document. December, 1994.
    \28\ EPA. Mountaintop Mining/Valley Fills in Appalachia: Draft 
Programmatic Environmental Impact Statement. 2003.
    \29\ EPA. Mid-Atlantic Integrated Assessment: Coal Mining. http://
www.epa.gov/maia/html/coal-mining.html
    \30\ EPA. Mountaintop Mining/Valley Fills in Appalachia: Final 
Programmatic Environmental Impact Statement. 2005.
    \31\ Id.
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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 percent 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 three million tons of methane per year, which 
is equivalent to 68 million tons of carbon dioxide.\32\
---------------------------------------------------------------------------
    \32\ DOE/EIA, 2005. Emissions of Greenhouse Gases in the United 
States 2004. (December).
---------------------------------------------------------------------------
    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.\33\ In 2002, one of Wyoming's coal producing 
counties, Campbell County, exceeded its ambient air quality threshold 
several times, almost earning non-attainment status.\34\ 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.\35\
---------------------------------------------------------------------------
    \33\ EPA. Particle Pollution and Your Health. 2003.
    \34\ Casper [WY] Star Tribune, January 24, 2005.
    \35\ 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).
---------------------------------------------------------------------------

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.\36\
---------------------------------------------------------------------------
    \36\ Frazier, Ian. ``Coal Country.'' On Earth. NRDC. Spring, 2003.
---------------------------------------------------------------------------
    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. 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.\37\
---------------------------------------------------------------------------
    \37\ Reece, Erik. ``Death of a Mountain.'' Harper's Magazine. 
April, 2005.
---------------------------------------------------------------------------

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,\38\ 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.
---------------------------------------------------------------------------
    \38\ Id.
---------------------------------------------------------------------------
    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.\39\,\40\ In addition to health risks, 
black carbon from diesel combustion is another contributor to global 
warming.\41\ Land disturbance from trucks entering and leaving the mine 
complex and coal dust along the transport route also release particles 
into the air.\42\ 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.'' \43\ Even after a lawsuit and a court victory, residents--who 
now call themselves ``Dustbusters''--still ``wipe down their windows 
and porches and cars.'' \44\
---------------------------------------------------------------------------
    \39\ DOT Federal Highway Administration. Assessing the Effects of 
Freight Movement on Air Quality, Final Report. April, 2005.
    \40\ Energy Information Administration: Coal Transportation 
Statistics.
    \41\ Hill, Bruce. ``An Analysis of Diesel Air Pollution and Public 
Health in America.'' Clean Air Task Force, Boston. February, 2005.
    \42\ EPA. Mountaintop Mining/Valley Fills in Appalachia: Draft 
Programmatic Environmental Impact Statement. 2003.
    \43\  Michael Schnayerson, ``The Rape of Appalachia,'' Vanity Fair, 
157 (May 2006).
    \44\ Id.
---------------------------------------------------------------------------
    Almost 60 percent of coal in the U.S. is transported at least in 
part by train and coal transportation accounts for 44 percent of rail 
freight ton-miles.\45\ Some coal trains reach more than two miles in 
length, causing railroad-crossing collisions and pedestrian accidents 
(there are approximately 3,000 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.'' \46\ 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.\47\
---------------------------------------------------------------------------
    \45\ http://nationalatlas.gov/articles/transportation/
a-freightrr.html
    \46\ Erik Reece, Lost Mountain: A Year in the Vanishing Wilderness 
112 (2006).
    \47\ Personal communication from Hillary Hosta and Julia Bonds, 
Coal River Mountain Watch (Apr. 7, 2006).
---------------------------------------------------------------------------
    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.\48\ 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.
---------------------------------------------------------------------------
    \48\ NRDC. Drawdown: Groundwater Mining on Black Mesa.
---------------------------------------------------------------------------

Water Requirements for Liquid Coal

    Liquid coal production requires large quantities of water. 
According to a USGS report, thermal electric generation accounted for 
39 percent of the freshwater withdrawn from watersheds in the U.S. in 
2000.\49\ The water use dedicated to liquid coal production will 
require water use above and beyond current uses, competing with other 
needs, including irrigation and public water supply. The withdrawal and 
consumption of water in areas with water shortages will be a major 
problem for this industry. Competing water uses, primarily for 
irrigation, will be a major problem in the West where water rights are 
established and water is considered a very valuable commodity. In the 
East, competing water uses, primarily from thermal electric cooling, 
and water shortages also are beginning to become an issue of concern.
---------------------------------------------------------------------------
    \49\ USGS 2004. ``Estimated Use of Water in the United States in 
2000,'' USGS Circular 126. Available at http://pubs.usgs.gov/circ/2004/
circ1268/pdf/circular1268.pdf
---------------------------------------------------------------------------
    There are three major uses of water in a coal-to-liquids plant, (1) 
process water, (2) boiler feed water and (3) cooling water. According 
to the Department of Energy's Idaho National Lab, approximately 12-14 
barrels of water are used for every barrel of liquid coal.\50\ 
Therefore the water requirement necessary to meeting the needs of an 
80,000 BPD liquid coal plant could require sourcing about 40 million 
gallons of water per day (14 billion gallons per year). The 40 million 
gallons of water per day needed for an 80,000 BPD liquid coal facility 
is enough water to meet the domestic needs of more than 200,000 
people,\51\ or one-fifth the population of the State of Montana. There 
are already serious water supply problems in Western states such as 
Montana and Wyoming where most of our cheap coal supplies are located.
---------------------------------------------------------------------------
    \50\ Boardman, Richard, Ph.D. ``Gasification and Water Nexus,'' 
Department of Energy, Idaho National Laboratory Gasification Research, 
presented March 14, 2007 at the GTC, Workshop on Gasification 
Technologies.
    \51\ Based on EPA's estimate of 200 gallons of water per person per 
day, http://www.epa.gov/watrhome/you/chap1.html
---------------------------------------------------------------------------
    While alternative technologies exist that use less water in the 
liquid coal production process, many of them are more costly and some 
may be cost prohibitive. In addition, water must be of good quality for 
use in cooling towers and blow down operations and if water must be 
treated before use that will add additional costs to the plant 
operations Some research is suggesting the option of using coal bed 
methane water as an alternative water source and this is only possible 
if this water's salinity is low or if desalinization costs were low. 
According to NETL, much of the water produced from coal bed methane 
operations is very saline and needs to be treated prior to surface 
discharge or plant use.\52\ Therefore, cost-effective sources of water 
and technologies that use water more efficiently in these processes are 
limited.
---------------------------------------------------------------------------
    \52\ DOE/NET-2006/1233 ``Energy Issues for Fossil Energy and Water: 
Investigation of Water Issues Related to Coal Mining, Coal to Liquids, 
Oil Shale and Carbon Capture and Sequestration.'' June 2006.
---------------------------------------------------------------------------

Coal Resource Requirements

    While it is frequently said that America has more than 250 years of 
coal to use, these claims are based current coal production of about 
one billion tons per year. As the National Academy of Sciences (NAS) 
has concluded, even with current consumption rates, it is ``not 
possible to confirm'' the 250 year supply claim because this estimate 
is based on ``methods that have not been reviewed or revised since 
their inception in 1974'' and that updated methods suggest that ``only 
a small fraction of previously estimated reserves are actually minable 
reserves.'' \53\
---------------------------------------------------------------------------
    \53\ National Research Council, ``Coal: Research and Development to 
Support National Energy Policy,'' Washington, DC, 2007 at 3.
---------------------------------------------------------------------------
    These observations indicate we should reconsider proposals to 
legislate incentives and mandates for programs like liquid coal that 
would dramatically increase our rates of coal consumption. As mentioned 
above, if all of the coal industry's wish list for coal use were 
implemented, coal production would more than double. Apart from the 
environmental and health threats presented by this scenario, there are 
potentially large adverse economic impacts from a program to increase 
coal consumption on this scale.
    Consider the following thought experiment. What would be the impact 
on U.S. recoverable coal reserves if we were to try to displace some 
significant fraction of U.S. oil imports with liquid coal? Current U.S. 
coal recoverable reserve estimates, using methods criticized by the NAS 
as possibly overstating actual minable coal, amount to just under 270 
billion tons. Suppose the U.S. were to ramp up a liquid coal of size 
large enough to replace one-third to one hundred per cent of forecasted 
U.S. oil imports by 2030? U.S. EIA forecasts that net oil imports 
(crude and refined products) in 2030 will be about 16 million barrels a 
day.\54\ Using the National Coal Council's estimate of conversion 
efficiency, to replace one-third of those imports would require 
consumption of nearly 1.2 billion tons of additional coal per year in 
2030 and if oil import demand increased at two percent per year, by 
2050 coal consumption to displace this same fraction of imports would 
grow to nearly 1.8 billion tons per year. When combined with continued 
use of coal for electric power, this rate of coal consumption would 
consume 40 percent of currently estimated recoverable reserves by 2050 
and would deplete all of those reserves by about 2080.\55\ If liquid 
coal production were scaled to a level needed to replace one-half of 
forecasted oil imports, 49 percent of estimated recoverable reserves 
would be consumed by 2050 and 100 percent by the year 2074 and if we 
tried to replace all of our forecasted oil imports with liquid coal 
then two-thirds of recoverable reserves would be consumed by 2050 and 
100 percent by the year 2060.
---------------------------------------------------------------------------
    \54\ U.S. Energy Information Administration, ``Annual Energy 
Outlook 2007.''
    \55\ For this calculation we assume a one percent per year growth 
rate in coal consumption in the power sector. This is not a sustainable 
scenario but is chosen to illustrate the implications of ``business as 
usual'' practices.
---------------------------------------------------------------------------
    The above is a thought experiment, not a prediction that we would 
actually run out of coal by those dates. Economists will argue that 
more reserves will become ``recoverable'' as the price rises. But as 
the argument suggests, such new reserves will be more expensive than 
today's coal supplies.
    The point we must recognize is that using coal to make liquid fuel 
will at a minimum raise coal prices substantially for all uses, 
including the electric power industry, which now depends on coal to 
produce over 50 percent of U.S. electricity. It is also worth noting 
that the massive amounts of CO2 that would have to be 
injected into geologic formations to limit emissions from liquid coal 
production will also drive up the cost of coal use. While it appears 
the U.S. has large amounts of geologic storage capacity, as with all 
resources there is a supply cost curve and with the large demand for 
storage capacity created by a significant liquid coal industry those 
costs will escalate faster than if demand is more moderate.
    In short, there is no basis to assume that liquid coal would be an 
economic bargain either, providing one more reason for us to look for a 
better way.

A Responsible Action Plan

    The impacts that a large liquid coal program could have on global 
warming pollution, conventional air pollution and damage from expanded 
coal production are substantial--so substantial that using coal to make 
liquid fuel would likely create far worse problems than it attempts to 
solve.
    Fortunately, the U.S. can have a robust and effective program to 
reduce oil dependence without embracing liquid coal technologies. A 
combination of efficiency, renewable fuels and plug-in hybrid vehicles 
can reduce our oil consumption more quickly, more cleanly and in larger 
amounts than liquid coal even on the massive scale advocated by the 
coal industry.
    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 three 
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 the coal industry.
    The Securing America program 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 one billion gallons per year and become 
        self-sufficient by 2015.
        
        

    To cut our dependence on oil we should follow a simple rule: start 
with the measures that will produce the quickest, cleanest and least 
expensive reductions in oil 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.











                     Biography for David G. Hawkins

    David G. Hawkins began his work in ``public interest'' law upon 
graduation from Columbia University Law School in 1970. He joined the 
Natural Resources Defense Council's Washington, DC office in 1971 as 
one of the organization's first staff members.
    In 1977, Mr. Hawkins was appointed by President Carter to be 
Assistant Administrator for Air, Noise, and Radiation at the 
Environmental Protection Agency. During his time at EPA, he was 
responsible for initiating major new programs under the 1977 Amendments 
to the Clean Air Act.
    With President Reagan's election in 1981, Mr. Hawkins returned to 
NRDC to co-direct NRDC's Clean Air Program.
    In 1990, Mr. Hawkins became Director of NRDC's Air and Energy 
Program, and in 2001 he became the Director of NRDC's Climate Center. 
The Climate Center focuses on advancing policies and programs to reduce 
the pollution responsible for global warming. In addition to working 
with Congress to design a legislative mechanism that will slow, stop 
and reduce the emissions of global warming pollution, Mr. Hawkins is 
recognized as an expert on advanced coal technologies and carbon 
dioxide capture and storage.
    Mr. Hawkins currently serves on the boards of the Center for Clean 
Air Policy, Resources for the Future and the Board on Environmental and 
Energy Systems of the National Academy of Sciences. He is also a member 
of the U.S. Department of Energy's Climate Change Science Program 
Product Development Advisory Committee. Mr. Hawkins participated in the 
Intergovernmental Panel on Climate Change's Special Report on Carbon 
Dioxide Capture and Storage and is participating in the IPCC's Fourth 
Assessment Report on climate change.
    Mr. Hawkins is married with three children and lives in Bethesda, 
MD.

    Chairman Lampson. Thank you, Dr. Hawkins.
    Dr. Romm.

     STATEMENT OF DR. JOSEPH ROMM, FORMER ACTING ASSISTANT 
 SECRETARY, OFFICE OF ENERGY EFFICIENCY AND RENEWABLE ENERGY, 
   DEPARTMENT OF ENERGY; SENIOR FELLOW, CENTER FOR AMERICAN 
                            PROGRESS

    Dr. Romm. Thank you. Thank you, Mr. Chairman and Members of 
the Committee. I appreciate the opportunity to share my views 
on liquid coal.
    I will--just two key questions. First, should Congress 
promote coal as a transportation fuel? And second, if Congress 
does, will people actually drive their cars with liquid coal? I 
think the answer to both questions is decidedly no.
    Congress should really promote only those technologies and 
strategies that provide significant and net societal benefit. 
Liquid coal does not provide net societal benefit. Worse, it 
will actually cause societal harm. Liquid coal would increase 
greenhouse gas emissions, use up increasingly scarce water 
supplies, and divert hundreds of billions of dollars from 
crucial clean energy solutions.
    We simply have run out of time to waste money and resources 
on liquid coal because global warming is happening faster than 
scientists had warned. Sea ice loss, ice sheet loss, 
temperature rise, sea level rise, hurricane intensity, and 
expansion of the tropics, all of them are happening faster than 
scientists expected.
    We all want to avoid catastrophic warming such as 80 foot 
sea level rise, and that means limiting future warming to two 
degrees Fahrenheit, and that requires mandatory cuts in 
greenhouse gas emissions of 60 to 80 percent by 2050, as many 
bills before Congress would require. And it certainly doesn't 
make any sense for Congress to pursue on the one hand reducing 
fossil fuel, CO2 emissions dramatically on the one 
hand and then on the other hand significantly promoting it with 
coal-to-liquids.
    It is true that carbon dioxide emissions that, as Dr. 
Hawkins said, carbon dioxide emissions from coal to diesel are 
about double that of conventional diesel. It is true that you 
could possibly capture the carbon dioxide and store it 
underground permanently, but that will make an expensive and 
complicated process even more expensive and complicated so it 
seems unlikely for the foreseeable future.
    I would also add that there is no evidence whatsoever that 
this country is at all serious about carbon capture and 
storage. If we were serious about carbon capture and storage, 
we would be doing decidedly different things. We would have a 
price for carbon dioxide, without which there will be no carbon 
capture and storage, and we would start identifying and 
certifying repositories for carbon capture, for carbon storage, 
which we haven't even begun doing.
    I would also add as I explained in my testimony, that using 
carbon dioxide for enhanced oil recovery is not sequestration. 
Why? Because the carbon dioxide squeezes more oil out of the 
ground. You then burn that oil, and you release the carbon 
dioxide again. So you haven't accomplished anything.
    I would also add, and this is important, that when you are 
done with the carbon capture and storage, if you happen to do 
it, you are still left with diesel fuel, which is a carbon-
intensive liquid fuel that will release its carbon into the 
atmosphere once it is burned in an internal combustion engine. 
We are going to need to reduce diesel consumption and all 
liquid petroleum consumption 60 to 80 percent by mid century. 
So we don't need to figure out ways to increase it.
    The future of coal in a carbon-constrained world is not 
liquefaction plus carbon capture and storage. The future of 
coal is electricity generation with carbon capture and storage 
since that is carbon free. A 2006, study by the University of 
California found that a significant use of coal to diesel could 
increase annual emissions by seven billion tons of carbon 
dioxide for several decades. That is more than current U.S. 
carbon emissions and would certainly be fatal to any effort to 
avoid catastrophic warming.
    Instead of liquid coal, Congress needs to address the 
climate problem by establishing a cap on emissions that creates 
a price for carbon dioxide. What would be the impact of that 
cap when you ultimately put it in place? The U.S. Energy 
Information Administration has actually done a number of 
studies on this. In one analysis EIA modeled a carbon dioxide 
permit price reaching only $14 in 2030, a relatively low price, 
considerably lower than the current price for carbon dioxide in 
Europe. Yet this low price reduced projected liquid coal 
production by 85 percent in 2030.
    A second EIA analysis showed that even a moderate price for 
carbon dioxide wipes out all projected liquid coal plants. So 
Congress is going to be passing laws in the next few years that 
are essentially going to render all liquid coal uneconomic.
    Coal-to-liquid is just a dead end from a climate 
perspective and from a water perspective, too. You have heard 
what Dr. Hawkins said. We are in a world that is facing mega 
droughts and chronic water shortages from human-caused climate 
change, and in fact, water demand is one reason chronically-
water-short China has raised the capital threshold for liquid 
coal projects in an effort to scale back growth.
    Time has simply run out in the race to avoid catastrophic 
warming. We no longer have the luxury of grossly misallocating 
capital and fuels to expensive boondoggles like coal-to-liquid. 
Liquid coal will not have a future in this country, no matter 
how much money Congress squanders on it. I think Congress 
should not allocate significant funds to liquid coal, R&D, or 
other measures to promote liquid coal. The future of coal in 
the carbon-constrained world, again, is in the form of 
electricity generation with carbon capture and storage.
    And as Dr. Hawkins said, if coal has a future as a 
transportation fuel, it is with plug-in hybrids running on zero 
carbon electricity generated from coal with carbon capture and 
storage.
    Thank you.
    [The prepared statement of Dr. Romm follows:]

                   Prepared Statement of Joseph Romm

    Mr. Chairman, Members of the Committee, I am delighted to appear 
before you today to discuss the subject of liquid fuel from coal. I am 
a Senior Fellow at the Center for American Progress here in Washington, 
DC where I run the blog ClimateProgress.org. I am author of the recent 
book Hell and High Water: Global Warming--the Solution and the Politics 
(Morrow, 2007) and have published and lectured widely on energy and 
climate issues.
    I served as Acting Assistant Secretary at the U.S. Department of 
Energy's Office of Energy Efficiency and Renewable Energy during 1997 
and Principal Deputy Assistant Secretary from 1995 though 1998. In that 
capacity, I helped manage the largest program in the world for working 
with businesses to develop and use clean energy technologies. I hold a 
Ph.D. in physics from M.I.T.
    We are all grappling with how best to avoid catastrophic global 
warming. I will argue coal-to-liquids is not part of the solution--and 
would in fact make the problem worse. The following figure, based on 
EPA data, shows the estimated change in greenhouse gas emissions from 
various alternative fuels:




    I appreciate the opportunity to share my views on coal-to-liquids, 
which are based on numerous discussions with leading energy experts; 
research and analysis for my book and for the National Commission on 
Energy Policy; and participation in the Defense Science Board Task 
Force on Department of Defense Energy Strategy, which heard a number of 
briefings on liquid coal, including from the Jason's defense advisory 
group. All references in this testimony can be found in my book or on 
my blog.

BACKGROUND

    The question of the role of coal-to-liquids can play in the 
national energy mix can be understood only with a full appreciation of 
the scale of climate mitigation the Nation and the world must pursue. 
Global concentrations of carbon dioxide, the primary greenhouse gas, 
are rising at an accelerating rate in recent years--and they are 
already higher than at any time in the past three million years. The 
scientific consensus, as reflected in the work of the Intergovernmental 
Panel on Climate Change (IPCC), appears to be seriously underestimating 
the rate of climate change:

          ``The recent [Arctic] sea-ice retreat is larger than 
        in any of the (19) IPCC [climate] models''--and that was a 
        Norwegian expert in 2005. The retreat has accelerated in the 
        past two years.

          The ice sheets appear to be shrinking ``100 years 
        ahead of schedule.'' That was Penn State climatologist Richard 
        Alley in March 2006. In 2001, the IPCC thought that neither 
        Greenland nor Antarctica would lose significant mass by 2100. 
        They both already have.

          The temperature rise from 1990 to 2005--
        0.33+C--was ``near the top end of the range'' of 
        IPCC climate model predictions.

          Sea-level rise from 1993 and 2006--3.3 millimeters 
        per year as measured by satellites--was higher than the IPCC 
        climate models predicted.

          Atlantic hurricane intensity appears to be increasing 
        faster than the models projected.

          The tropics are expanding faster than the models 
        project.

          Since 2000, carbon dioxide emissions have grown 
        faster than any IPCC model had projected.

    Worse, the ocean's heat content will keep re-radiating heat into 
the Earth's atmosphere even after we eliminate the heat imbalance, 
meaning the planet will keep warming and the glaciers keep melting for 
decades after we cut greenhouse gas emissions. Therefore, we must act 
in an ``anticipatory'' fashion and reduce emissions long before climate 
change is painfully obvious to everyone.
    The planet has warmed about 0.8+C since the mid-19th 
century, primarily because of human-generated greenhouse gas emissions. 
If we don't sharply reverse the increase in global greenhouse gas 
emissions within the next decade, we will be committing the world to an 
additional 2+ to 3+C warming by century's end, 
temperatures not seen for millions of years, when Greenland and much of 
Antarctica were ice free, and sea levels were 80 feet higher.
    How fast can the sea level rise? Following the last ice age, the 
world saw sustained melting that raised sea levels more than a foot a 
decade. NASA's Dr. James Hansen--the country's leading climate 
scientist--believes we could see such a catastrophic melting rate 
within the century, as do many others I interviewed for my book. Other 
potential devastating threats from unrestricted greenhouse gas 
emissions include widespread drought and desertification, including in 
the American southwest, and an increase in extreme weather of all 
kinds, including heat waves, hurricanes, and severe rainstorms.
    To avoid this fate, we must sharply reduce global carbon dioxide 
emissions from fossil fuel combustion. As an example of the kind of 
reductions required by climate change, both Florida Governor Charlie 
Crist and California Governor Arnold Schwarzenegger have committed 
their states to reduce greenhouse gas emissions to 80 percent below 
1990 levels by 2050. The United States Climate Action Partnership--a 
group of Fortune 500 companies and leading environmental 
organizations--has embraced 60 percent to 80 percent cuts by 2050. 
Former Prime Minister Tony Blair committed the United Kingdom to a 60 
percent reduction by 2050. The IPCC says all industrialized nations, 
including the United States, need to achieve reductions of 50 percent 
to 80 percent to avoid the worst of global warming--and that requires 
emissions to peak in the next decade. Many bills have been introduced 
to Congress to achieve such cuts. The question is where does liquid 
coal fit in U.S. efforts to achieve such cuts?

NO ROLE FOR LIQUID COAL

    Coal and natural gas can be converted to diesel fuel using the 
Fischer-Tropsch process. During World War II, coal gasification and 
liquefaction produced more than half of the liquid fuel used by the 
German military. South Africa has employed this process for decades.
    The process is not more widely used today in large part because it 
is incredibly expensive. It costs $5 billion or more just to build a 
plant capable of producing 80,000 barrels of oil a day (the U.S. 
currently consumes more than 21 million barrels a day).
    Five to seven gallons of water are necessary for every gallon of 
diesel fuel that's produced (and double that if you co-produce diesel 
fuel and electricity from coal), according to the June 2006 report, 
``Emerging Issues for Fossil Energy and Water: Investigation of Water 
Issues Related to Coal Mining, Coal to Liquids, Oil Shale, and Carbon 
Capture and Sequestration'' by DOE's National Energy Technology 
Laboratory. Here is the key figure from the report:




    This is not a particularly good long-term strategy in a nation and 
a world facing mega-droughts and chronic water shortages from human-
caused climate change. The heavy water demand is one reason chronically 
water-short China has raised the capital threshold for liquid coal 
projects in an effort to scale back growth.
    Worse than the water issue, the total carbon dioxide emissions from 
coal-to-diesel are about double that of conventional diesel, as the 
earlier figure shows. It is possible to capture the carbon dioxide from 
the process and store it underground permanently. But that will make an 
expensive process even more expensive, so it seems unlikely for the 
foreseeable future, certainly not until carbon dioxide is regulated and 
has a high price and we have a number of certified underground geologic 
repositories.
    More importantly, even with the capture and storage of CO2 
from the Fischer-Tropsch process, the final product is diesel fuel, a 
carbon-intensive liquid that will release CO2 into the 
atmosphere once it is burned in an internal combustion engine. A great 
many people I have spoken to are confused about this point: They think 
that capturing and storing the CO2 while turning coal to 
diesel is as good an idea as capturing the CO2 from the 
integrated gasification combined cycle (IGCC) process for turning coal 
into electricity. No. The former process still leaves a carbon-
intensive fuel, whereas the latter process yields near zero-carbon 
electricity.
    The future of coal in a carbon-constrained world is electricity 
generation with carbon capture and storage, not CTL plus carbon capture 
and storage. Capturing and storing even one gigaton of carbon a year 
requires a flow of carbon dioxide into the ground equal to the current 
flow of oil out of the ground. That by itself represents an enormous 
engineering challenge. We need to devote the vast majority of this 
level of sequestration effort to power production, to generation of 
zero-carbon electricity from coal, not to generation of an endless 
stream of carbon-intensive liquid fuel like Fischer-Tropsch diesel. 
Worse, some people propose taking the captured CO2 and using 
it for enhanced oil recovery, which, as discussed below, is the 
equivalent of not capturing the carbon dioxide at all.
    Coal to diesel is a bad idea for the Nation and the planet. If the 
United States pursues it aggressively, catastrophic climate change will 
be all but unavoidable. Turning natural gas into diesel is not as bad 
an idea, at least from the perspective of direct emissions, because 
natural gas is a low-carbon fuel. But it represents a tremendous misuse 
of natural gas, which could otherwise be used to reduce future 
greenhouse gas emissions.
    A 2006 study by the University of California at Berkeley found that 
meeting the future demand shortfall from conventional oil with 
unconventional oil, especially coal-to-diesel, could increase annual 
emissions by 2.0 billion metric tons of carbon (7.3 gigatons of carbon 
dioxide) for several decades. That is more than current total U.S. 
carbon emissions and would certainly be fatal to any effort to avoid 
3+C increase in average worldwide temperature. Indeed, in a 
liquid coal scenario, a tripling of carbon dioxide emissions by 
century's end seems likely, which would likely leave the planet 
5+C warmer than preindustrial levels by 2100--a temperature 
not seen since before Antarctica had ice, when sea levels were 280 feet 
higher than current levels. Again, avoiding 3+C requires a 
substantial decrease in total upstream and downstream carbon emissions 
from oil by mid-century.

EIA PREDICTS CARBON PRICE FATAL TO LIQUID COAL

    Instead of promoting of liquid coal, Congress must address the 
climate problem by establishing a cap on emissions that creates a price 
for carbon dioxide. What will be the impact on liquid coal of a carbon 
cap? Two recent reports by the U.S. Energy Information Administration 
(EIA) provide the answer.
    In its January 2007 report, ``Energy Market and Economic Impacts of 
a Proposal to Reduce Greenhouse Gas Intensity with a Cap and Trade 
System,'' EIA examined the impact of a draft version of Sen. Jeff 
Bingaman's global warming bill. That bill has a safety valve, which 
limits the price of carbon dioxide permits. In the EIA analysis, the 
permit price starts around $4 a ton of carbon dioxide in 2012, rises to 
$7.15 in 2020 and reaches only $14.18 in 2030. This is a relatively low 
price for carbon dioxide. Indeed, this 2030 price is considerably lower 
than the current price for carbon dioxide in the European Union--and 
the first budget year for Kyoto isn't even until next year. In this 
scenario, EIA finds:

         in 2020, CTL production is 0.2 million barrels per day (74 
        percent) lower than in the reference case. By 2030, the change 
        is 0.6 million barrels per day (85 percent) lower than in the 
        reference case.

    In short, a relatively low price for carbon dioxide wipes out the 
vast majority of projected CTL.
    In July 2007, EIA released ``Energy Market and Economic Impacts of 
S. 280, the Climate Stewardship and Innovation Act of 2007,'' an 
analysis of the global warming bill by Senators John McCain and Joe 
Lieberman. S. 280 sets considerably more stringent reduction targets 
than Sen. Bingaman's draft bill--ultimately reaching 60 percent below 
1990 emissions levels by 2050. This bill has no safety valve. As a 
result, the permit price reaches $22.20 in 2020 and hits $47.90 in 
2030. The report finds:

         None of the 15 coal-to-liquids plants built in the reference 
        case are projected to come on line in the main S. 280 cases. In 
        the reference case [business as usual], coal consumption at CTL 
        plants reaches 109 million tons in 2030.

    A moderate price for carbon dioxide wipes out all projected CTL.
    Since it is all but inevitable that we will have a low-to-moderate 
price of carbon dioxide by 2020, and at least a moderate price by 2030, 
CTL will not achieve any significant market penetration. No amount of 
federal research and development investment or tax credits or loan 
guarantees are likely to change that equation.

CTL FOR ENHANCED OIL RECOVERY DOES NOT HELP THE CLIMATE

    The carbon dioxide from CTL could be used to squeeze more oil out 
of the ground by injecting it into a well where it would be sequestered 
permanently. It might be argued that the carbon dioxide could have dual 
value--for enhanced oil recovery (EOR) and as a certified greenhouse 
gas emission reduction--and that such a dual value would make CTL more 
economical.
    That, however, makes neither environmental nor economic sense. The 
key ratio is carbon dioxide injected vs. carbon dioxide released from 
recovered oil. BP and UCLA did such a life cycle analysis in 2001 and 
concluded, ``the EOR activity is almost carbon-neutral when comparing 
net storage potential and gasoline emissions from the additional oil 
extracted.'' And that may be optimistic. The study notes:

         The results presented reflect only gasoline consumption but do 
        not take into account the additional emissions that would 
        originate from the refining process, nor the emissions arising 
        from the combustion of the other products of crude oil such as 
        diesel, bunker or jet fuels.

    In short, the carbon dioxide used to recover the oil is less than 
the carbon dioxide released from that oil when you include the carbon 
dioxide released from 1) burning all the refined products and 2) the 
refining process itself. For that reason, no nation should give carbon 
credits for carbon dioxide used for EOR.
    The study, however, has a different conclusion: ``utilizing 
captured and recycled CO2 instead of using CO2 
exclusively from natural reservoirs reduces greenhouse gas emissions to 
the atmosphere from EOR'' (emphasis added). This is true because most 
carbon dioxide used for EOR today comes from ``natural reservoirs.''
    But the Nation and the world have barely touched the full potential 
of EOR even though it can potentially double the oil output from a well 
that has undergone primary and secondary recovery. Why? As a 2005 
Department of Energy press release on an EOR-sequestration project 
noted, ``much of the CO2 used in similar U.S. EOR projects 
has been taken at considerable expense from naturally occurring 
reservoirs'' (emphasis added).
    Cheap, widely available carbon dioxide would be a game-changer for 
oil recovery. The DOE carefully studied EOR and came to an amazing 
conclusion in 2006. In the U.S. alone, ``next generation 
CO2-EOR technology'' and ``widespread sequestration of 
industrial carbon dioxide'' could add a stunning ``160 billion barrels 
of domestic oil recovery.'' The combustion of that oil would produce 
more than 60 billion tonnes of CO2, equivalent to ten times 
annual U.S. CO2 emissions.
    A CTL project where the carbon dioxide is captured and used for new 
EOR is a doubly bad idea from a climate perspective. Nor does it solve 
the problem of oil dependency. As President Bush has said, ``we are 
addicted to oil'' and ``we need to get off oil.'' Achieving those goals 
while sharply reducing greenhouse gas emissions can be accomplished 
only with cars that are significantly more fuel-efficient running on 
low-carbon alternative fuels, such as cellulosic ethanol or electricity 
from zero-carbon sources for plug-in hybrid electric vehicles.

CONCLUSION

    We are simply running out of time to avoid catastrophic warming, 
and we no longer have the luxury of grossly misallocating capital and 
fuels to expensive boondoggles like coal-to-liquid. Because of the 
urgent need to reduce greenhouse gas emissions--because Congress is 
finally considering the passage of a cap and trade system to reduce 
emissions--CTL should have little future in this country.
    Congress should certainly not allocate significant funds to CTL 
R&D, nor should it take other measures to promote CTL. The future of 
coal in a carbon constrained world is in the form of electricity 
generation with carbon capture and storage. And if coal has a future as 
a transportation fuel, it is with plug in hybrids running on such zero-
carbon coal electricity. For these reasons, accelerating the transition 
to such zero-carbon power is where Congress should be focusing its time 
and resources.

                       Biography for Joseph Romm

    Dr. Joseph Romm is one of the world's leading experts on clean 
energy technologies and greenhouse gas mitigation. He is a senior 
fellow at the Center for American Progress, where he oversees the blog 
ClimateProgress.org. He is author of the book Hell and High Water: 
Global Warming-the Solution and the Politics (Morrow, 2007). Dr. Romm 
is coauthor of the Scientific American article, ``Hybrid Vehicles Gain 
Traction'' (April 2006), and author of the report, ``The Car and Fuel 
of the Future: A Technology and Policy Overview,'' for the National 
Commission on Energy Policy (July 2004). His previous book, The Hype 
About Hydrogen: Fact and Fiction in the Race to Save the Climate, was 
named one of the best science and technology books of 2004 by Library 
Journal.
    Dr. Romm served as Acting Assistant Secretary at the U.S. 
Department of Energy's Office of Energy Efficiency and Renewable Energy 
during 1997 and Principal Deputy Assistant Secretary from 1995 though 
1998. In that capacity, he helped manage the largest program in the 
world for working with businesses to develop and use clean energy 
technologies--one billion dollars aimed at hybrid vehicles, electric 
batteries, hydrogen and fuel cell technologies, all forms of renewable 
energy, distributed generation, energy efficiency in buildings and 
industry, and biofuels.
    Romm initiated, supervised, and publicized a comprehensive 
technical analysis by five national laboratories of the energy 
technologies best able to reduce greenhouse gas emissions cost-
effectively, ``The Five Lab Study.'' He helped lead the development of 
the Administration's climate technology strategy. He is also author of 
the first book to benchmark corporate best practices for using clean 
energy technologies to reduce greenhouse gas emissions: Cool Companies: 
How the Best Businesses Boost Profits and Productivity by Cutting 
Greenhouse Gas Emissions.
    Dr. Romm is Executive Director and founder of the Center for Energy 
and Climate Solutions--a one-stop shop helping businesses and states 
adopt high-leverage strategies for saving energy and cutting pollution. 
The Center is a division of the Virginia-based nonprofit, Global 
Environment & Technology Foundation. Romm's clients have included 
Toyota, IBM, Johnson & Johnson, Collins Pine, Nike, Timberland, Texaco, 
and Lockheed-Martin.
    Romm holds a Ph.D. in physics from M.I.T. He has written and 
lectured widely on clean energy and climate issues, including articles 
in Forbes, Technology Review, Issues in Science and Technology, Foreign 
Affairs, The New York Times, the L.A. Times, Houston Chronicle, 
Washington Post, and Science magazine. He co-authored ``Mid East Oil 
Forever,'' the cover story of the April 1996 issue of the Atlantic 
Monthly, which predicted higher oil prices within a decade and 
discussed alternative energy strategies.

    Chairman Lampson. Thank you, Dr. Romm.
    Now, Dr. Boardman.

    STATEMENT OF DR. RICHARD D. BOARDMAN, SENIOR CONSULTING 
    RESEARCH AND DEVELOPMENT LEAD, IDAHO NATIONAL LABORATORY

    Dr. Boardman. I am honored to be invited to contribute to 
the discussion about the benefits and challenges of converting 
coal into liquid transportation fuels.
    I have submitted a lengthy testimony to you, but time will 
not permit me to draw your attention but only to a very few of 
the most selling points in that document. My remarks are based 
on my personal and professional knowledge and do not reflect 
the views of the Department of Energy (DOE).
    Please direct your attention, if you would, please, to the 
drawing in the lengthy document on page 6 of my testimony, 
which shows the life cycle of carbon obtained from biomass and 
coal when it is utilized to produce synthetic fuels, electric 
power, and chemical products. This figure depicts the plan that 
Baard Energy is developing for a site in Ohio.
    Baard Energy and the Idaho National Lab (INL) entered into 
a cooperative research and development agreement to study a 
coal-to-liquids plant similar to the figure you are viewing, 
using the majority of coal with a smaller portion of biomass.
    Now please turn your attention to the summary table on page 
5. The top row shows the amount of greenhouse gas released when 
transportation fuels are produced from Arabian crude. The 
second row shows the greenhouse gas emissions calculated by DOE 
NETL for a hypothetical coal-to-liquids plant. The third row 
shows the greenhouse gas emissions calculated by INL for the 
Baard energy Ohio project before any controls for greenhouse 
gas emissions are implemented. The remaining rows show various 
levels of greenhouse gas reduction that can be attained by 
implementing carbon capture and sequestration and by co-feeding 
only 30 percent biomass to the coal gasifier.
    As you can see from this table, it is possible to reduce 
greenhouse gas emissions by up to 46 percent below comparable 
crude emissions when the coal-to-liquids plants are operated in 
this manner.
    I wish to leave you with three factual points with respect 
to the exemplary Baard energy plant design. First, gasification 
and coal and biomass plans is technically feasible and 
commercially proven and available for use today. I have over 20 
years of experience. My Ph.D. is in gasification and 
combustion. I have performed research in this area.
    Second, gasification of biomass with coal is the 
technically best method for extracting the available energy 
from carbon from the biomass to produce transportation fuels 
and other chemical products. I repeat, it is the technically 
best method for extracting the energy and carbon from that 
biomass.
    Third, this technology is ready for first-of-kind 
facilities in the United States, just as it is currently being 
applied in other nations. Except that in America engineering, 
ingenuity, and the will to control greenhouse gas emissions can 
provide a beacon to the global commons.
    Let us turn our attention to the concerns about water that 
has been brought up. On Page 12 I present a drawing showing the 
demand and discharges of water for a representative coal-to-
liquids plant. A large amount of water is needed, as has been 
stated, to produce hydrogen and to provide process cooling 
throughout these plants. Evaporation losses in the cooling 
tower can be significant. As much as 10 to 15 barrels of water 
per barrel of liquid product will be required unless standard 
operating practices are changed.
    Gas to gas coolers and closed-loop heat recovery cycles can 
be deployed to reduce the water demand to as little as three to 
five barrels per barrel of liquid product. The technology 
exists. It is a matter of cost, benefit to tradeoff, and a will 
to implement these changes.
    In my written testimony I will draw attention to the 
potential of using coal-bed methane wells-produced water to 
supply coal-to-liquids plants. For example, I project the 
possibility of using coal-bed methane water that may be 
produced in the Wyoming Powder River Basin to support the 
production of four million barrels of synthetic fuels produced 
over a 50-year period. The water availability may not be the 
barrier to start up of the first coal-to-liquids plants or 
those that are built and replicated thereafter. It may simply 
be the cost benefit tradeoffs required to reduce that water 
consumption. Again, American ingenuity and engineering can 
help.
    I think I will pass by my comments on suggestions for 
research that could, that the Federal Government could support. 
I think most of my information is in the written testimony, and 
a lot of that has already been brought up.
    In the interest of time I would like to just proceed to my 
conclusions. I believe the U.S. can establish greater energy 
independence using hybrid and electrically-powered cars, as 
been suggested, while assuring there is an adequate supply of 
diesel and jet fuels for, please understand, aircraft, shipping 
vessels, trains, heavy vehicles, and machinery that currently 
consumes a high percentage of the petroleum derived in fuels in 
the U.S.
    A balanced portfolio of clean energy is needed inclusive of 
clean coal conversion to electricity, chemicals, and 
transportation fuels. It is important to national security and 
climate control that clean coal-to-liquids plants be 
constructed to establish the experience and infrastructure 
necessary to establish this industry in the U.S.
    Thank you for allowing me to speak.
    [The prepared statement of Dr. Boardman follows:]

               Prepared Statement of Richard D. Boardman

    Mr. Chairman and Members of the Subcommittee, I am honored to be 
invited to contribute to the discussion about the benefits and 
challenges of converting coal into liquid transportation fuels by 
gasification followed by catalytic transformation of the resulting 
syngas into synthetic diesel and other petroleum-like substitutes. This 
method of converting coal into synthetic fuels is often referred to as 
the Fischer-Tropsch process.

INTRODUCTION & BACKGROUND

    By way of introduction, I am a senior consulting research and 
development lead for the Idaho National Laboratory (INL) where I have 
worked for the past 17 years. My project assignments have covered a 
spectrum of fundamental and applied research projects in nuclear fuel 
reprocessing, radioactive waste cleanup, pollutant emissions control, 
clean coal technology development, and gasification-based technology 
assessment, development, and process design. Over the past six years, 
my research efforts have primarily focused on integrated gasification 
and combined cycle power generation, and process modeling of Fischer-
Tropsch synthetic fuels plants. I am currently working with other 
scientists and engineers at the INL, regional universities, and private 
companies to develop gasification technology and associated process 
understanding to efficiently convert hydrogen deficient materials 
(i.e., coal, coke, resid, biomass, and other opportunity fuels) into 
clean fuels, substitute natural gas, electrical power, and chemicals 
such as ammonia. I am also the Lead for the INL Energy Security 
Initiative, aimed at increasing the Laboratory's capabilities and 
missions in developing CLEAN, SECURE, ECONOMICAL, and SUSTAINABLE 
energy solutions including the integration of the next generation of 
nuclear reactors to assist in the extraction and conversion of oil 
shale, oil sands, and coal to liquids.
    I have served as an adjunct professor at the University of Idaho 
and Brigham Young University, providing course instruction and student 
advise in combustion processes, air pollutant control, and nuclear 
chemical engineering. I support Wyoming State government's interest to 
better understand clean coal conversions options, as well as private 
industry project development through DOE approved Work for Others and 
Cooperative Research and Development Agreements with the INL. I am an 
officer for the Idaho Academy of Sciences (IAS), just having completed 
a customary one-year term as the IAS President. I organized the IAS 
49th Annual Conference held this past April with the theme Energy for 
the Future: Environmental and Ecological Considerations.
    I provide this personal background to establish a perspective for 
the views that follow. While all of us here today and others across the 
Nation will claim an interest in protecting our environment, most will 
also concur that we have come to appreciate a sustained quality of life 
living at a comfortable temperature in decent dwellings with adequate 
mobility to reach our work location and other destinations in a safe, 
orderly, and efficient manner. We also have come to depend on an 
uninterrupted and diverse supply of fresh food and basic consumer 
commodities. The fact is that the basis for our present quality of life 
is realized from the development of at least three indispensable 
energy-related commodities: First) ammonia based fertilizers; Second) 
electrical power; and Third) transportation fuels, which today is 
primarily derived form petroleum-derived gasoline and diesel. Global 
demographics and the quality of life are directly correlated to these 
three commodities, including, but not limited to mass production and 
distribution of food, operation of machinery that enables mass 
production, and transit of these products to consumers. Remove any one 
of these commodities, and life as it is appreciated today, both here 
and in developing nations will be dramatically halted. Add all of these 
commodities to stable developing nations, and the standard of living 
will eventually approach that of the United States. Thus, we should all 
be concerned about the potential escalation of environmental and 
political consequences of increased energy demand and production around 
the globe.
    All of us present here today are concerned with the compelling 
statistics regarding the imminent peaking of oil production (estimated 
by most to occur within 5-10 years). Adding to this concern, there is a 
simultaneous increasing demand for energy and transportation fuels by 
China, India, and many other nations. Projected population in India and 
China alone may increase from around 2.3 billion persons (estimated 
population in 2003) to over 2.8 billion in 2015. The per capita oil 
consumption in these two nations in 2003 was only 0.74 and 1.4 barrels 
per year (bbl/yr), respectively. In comparison, the per capita 
consumption in the United States was 25.6 bbl/yr, while it was 19.5, 
15.2, and 5.3 bbl/yr in Canada, Japan, and Mexico, respectively. It is 
possible then, and many credible sources predict, that the global 
energy demand through 2050 will exceed ten times the equivalent oil 
reserves of the concentrated oil triangle in the Middle East, where 
roughly 60 percent of the remaining oil reserves are located. These 
combined facts underscore two potentially significant terrestrial 
events that are relevant to national security and global climate 
detriment. Clearly, I am referring to the increasing scarcity of oil 
and an escalation of greenhouse gases attributed to unmitigated release 
of carbon dioxide. These two problems should not overshadow the ongoing 
loss of industry in the United States, including fertilizer, glass, 
steel, and chemical production to foreign nations, and the impact on 
national security and economic prosperity when U.S. manufacturing and 
production further decline.
    With this background in mind, I turn your attention to the purpose 
of my testimony today. It is my intention to address the importance of 
providing immediate incentives to advance coal and biomass conversion 
to liquid transportation fuels in an environmentally acceptable manner. 
I will address solutions that are being proposed and developed by the 
Idaho National Laboratory and industrial CRADA partners to reduce both 
the projected life cycle release of greenhouse causing gases and the 
potential demand on water resources. This testimony will hopefully 
convey an understanding that the technology basis and environmental 
solutions for coal-to-liquids plants (CLT) are equally applicable to 
production of synthetic natural gas, ammonia, chemicals, hydrogen, and 
electrical power from coal and biomass resources. A holistic and 
balanced approach to resource utilization to achieve the optimum use of 
our natural resources will therefore be suggested. This discussion will 
lead to recommendations on the role of federal research in achieving 
these goals.

GREENHOUSE GAS EMISSIONS PROJECTIONS

    I will begin my technical remarks by sharing the results of a 
recent technical study completed by the Idaho National Laboratory under 
a Cooperative Research and Development Agreement with Baard Energy, 
L.L.C. Baard Energy, through its project company Ohio River Clean 
Fuels, L.L.C. (ORCF), is developing a coal gasification Fischer-Tropsch 
synthetic fuels plant in Wellsville, Ohio. A process model for the 
project has been developed by the Idaho National Laboratory to assist 
Baard Energy with design and permitting activities. The model has been 
used to determine operating conditions to capture and sequester 
byproduct carbon dioxide and to study the benefits of blending biomass 
with coal to reduce greenhouse gas (GHG) emissions. A life cycle GHG 
emissions assessment based on the model results for the ORCF plant, and 
apportioned to the product mix of liquefied petroleum gas, naphtha, 
diesel fuel, and power, indicates that a 30 percent reduction in GHG 
emissions compared to life cycle GHG emissions for transportation fuels 
produced from Arabian Crude for the synthetic diesel fuel is achievable 
when biomass fuel is blended with the coal feeding the process and when 
concentrated CO2 is separated from the syngas feed to the 
Fischer-Tropsch reactors and used or sequestered. When credit is also 
given for the sale of surplus electrical power generated by the plant 
(compared to the GHG emissions of the average electrical U.S. power 
mix), the ORCF plant will further reduce GHG emissions approaching 50 
percent of the emissions from ultra-low sulfur diesels derived from 
crude oil. Additionally, other plant products, specifically the 
synthetic naphtha liquid produced by the Fischer-Tropsch process which 
may be used to produce additional transportation fuels or chemical 
feedstock such as ethylene, can also reduce GHG emissions compared to 
similar petroleum-derived products.
    The results of the Baard Energy study are being presented in eight 
days at the 24th Annual International Pittsburgh Coal Conference being 
held on the doormat of the Sasol Secunda CTL complex in Johannesburg, 
South Africa. While some key findings of the INL-Baard study are 
provided here today, I encourage you to review this technical paper 
after it has been released with the Conference Proceedings.
    The table below summarizes the life cycle emissions of greenhouse 
gases for CTL transportation fuels on the basis of the mileage attained 
by a standard U.S. utility sports vehicle averaging 24.4 miles per 
gallon when operating on petroleum diesel.




    The INL-Baard study takes into account all greenhouse gas emissions 
associated with fuels and feedstock input production and transportation 
to the CTL plant. The study includes cases where woody biomass produced 
in the United States is blended with the coal in the same manner that 
already has been proven technically feasible in Europe at the 
Puertollano, Spain and the Buggenum, Netherlands integrated 
gasification, combined cycle (IGCC) power plants. The study accounts 
for all greenhouse gas emissions associated with conversion of the 
fuels into syngas and subsequent cleanup and conversion of the syngas 
into liquid fuels using the Fischer-Tropsch reaction process and 
associated product upgrading and refining. Next, the study takes into 
account the greenhouse gas emissions associated with delivery of the 
fuel to consumers and finally the consumption of the fuel in a standard 
transportation vehicle. This study emulates the work performed by the 
DOE National Energy Technology Laboratory (NETL), and investigations by 
other federal, university and private organizations to assess ``well-
to-wheel'' greenhouse gas emissions associated with various 
transportation fuels. While such studies invoke specific assumptions, 
it should be noted that the majority of the greenhouse gas emissions 
are attributed to the CTL plant and end-state combustion as illustrated 
in the figure that follows.




    This INL-Baard life cycle greenhouse gas study corroborates the 
findings of other organizations, but varies to the extent that the 
design of the CTL plant differs from the other studies. It is important 
to understand there can be significant variation in the CTL plant 
emissions depending on unit operation choices, the options selected for 
the integration of heat and material recycle, and the decision to co-
produce electricity or other chemical products. I hereby state without 
reservation that greenhouse gas emissions for coal-derived 
transportation fuels can be reduced by at least 20 percent relative to 
petroleum fuels. The INL-Baard study shows that a 30 percent reduction 
may be possible before credit is taken for the clean power produced by 
the plant. When apportioned credit is taken for the green power co-
produced by the plant, the GHG emissions reduction is estimated to be 
46 percent as previously indicated by Baard Energy in a press 
conference just last May. It is also important to state that these 
reduced levels of GHG emissions can be accomplished using existing 
technologies to concentrate and remove the CO2 produced by 
the process, and by blending biomass with the coal feedstock.
    Some important observations of the study include the following:

        1.  Almost 50 percent of the carbon fed to the CTL plant can be 
        readily captured and sequestered in an appropriate geological 
        sink or it may be used for enhanced oil recovery.

        2.  Approximately 30 percent of the carbon is incorporated in 
        the liquid and gaseous fuels produced by the plant.

        3.  Approximately 15 percent of the carbon is converted to 
        electrical power that is used for the auxiliary load 
        requirements in the plant while also producing much needed 
        clean electrical power.

        4.  Sequestration of the bulk CO2 produced and 
        process efficiency improvements can easily reduce life cycle 
        GHG emissions from CTL transportation fuels to a level 
        comparable to fuels derived from crude oil.

        5.  Use of 30 percent biomass by weight achieves an apportioned 
        reduction percentage of approximately 20-25 percent, depending 
        on the choice of biomass utilized and the relative carbon 
        content and moisture levels in the biomass.

        6.  The surplus electrical power produced by a CTL plant is 
        neutral with respect to GHG emissions when 30 weight percent 
        biomass is used in combination with CO2 
        sequestration (please refer to the Pittsburgh International 
        Coal Conference paper for a detailed explanation).

    In addition to these conclusions, other environmental benefits of 
the combination of coal and biomass conversion to synthetic fuels using 
the gasification/Fischer-Tropsch process include significantly reduced 
emissions of sulfur and other acid rain and ozone pollutant precursors 
and complete control of mercury and other toxic metal emissions. 
Additionally, it can be shown that this manner of converting biomass to 
liquid fuels, specifically woody biomass as well as most herbaceous 
materials, is a much more efficient method of converting and utilizing 
the chemical potential of biomass. The GHG emissions associated with 
indirect conversion of biomass to liquid fuels are significantly less 
than ethanol fuels derived from the popular fermentation process.
    Auto manufacturers in Europe and Japan are now producing hybrid 
cars that will operate on diesel fuel and will attain higher fuel 
mileage than their gasoline-electric driven counterparts. Therefore, 
the diesel fuels produced in the manner outlined in the INL-Baard study 
will further reduce greenhouse gases emitted from a hybrid vehicle. In 
other words, the greenhouse gas emissions are mainly due to the 
production of the fuels, and are not a strong function of type of fuel 
used in the hybrid vehicle.

FEASIBILITY OF GASIFYING BIOMASS WITH COAL

    Regarding the technical feasibility of incorporating biomass with 
the coal feed in a coal-to-liquids plant, coal gasification plants in 
Europe have demonstrated the viability of operating commercial, high-
pressure, entrained-flow gasifiers with blends of biomass for sustained 
periods of operation. While the Baard ORCF project is based on gasifier 
technology that has successfully operated on with biomass and coal 
blends, there are other options that can be used to incorporate biomass 
gasification into a CTL plant. One alternative is to independently 
inject the biomass into the gasifer while simultaneously feeding coal 
through a separate nozzle. A second option would be to locate a set of 
gasifiers designed specifically to gasify biomass along with the 
battery of conventional entrained-flow gasifiers used for pulverized 
coal. Both high-pressure fluidized-bed and fixed-bed biomass gasifiers 
are commercially proven and available. This option opens the 
possibility of using the high temperature of an entrained-flow coal 
gasifiers to destroy tars and oils produced at lower operating 
temperatures in the fluid-bed or fixed-bed biomass gasifiers.
    Biomass by itself can be difficult to gasify due to its high 
moisture content and other physical and chemical properties. Biomass 
gasifiers inherently produce tars and oils that are troublesome to 
convert into syngas in conventional biomass gasifiers. Another problem 
can be the low melting point of the ash which can be difficult to 
manage. Hence, significant attention continues to be directed to 
developing efficient and reliable biomass gasifiers. However, when the 
biomass is blended with coal and gasified in a high temperature 
slagging gasifier, the issue of tar formation is eliminated. The slag 
produced by the biomass is readily incorporated into the higher mass of 
slag produced by the coal. These facts underscore the benefits of 
gasifying biomass with coal. It is technically the best method of 
converting the biomass to syngas and subsequently to synthetic fuels. 
Additional arguments in favor of co-gasifying biomass with coal are 
beyond the scope of this testimony, but can be provided by any expert 
in gasification and thermal conversion processes.
    Biomass gasification should not be considered a barrier to current 
project planning that is aimed at reducing greenhouse gas emissions and 
other environmental impacts. However, commercialization and testing of 
proven and emerging biomass gasifiers, in connection with testing by 
DOE and industry of dry feed pumps and advance syngas cleanup 
technology should continue. Improvement of biomass feedstock 
collection, preparation, and delivery technology and infrastructure 
should also be supported. This work will expand the possible uses of a 
wider variety of biomass, and will increase our current understanding 
of the benefits and potential impacts of biomass gasification on 
refractory life and syngas cleanup requirements, for example. In 
conclusion, the feasibility of using biomass with coal can be resolved 
with engineering, ingenuity, and the will to do so.
    The fact that biomass itself can be converted to liquid fuels begs 
an answer to the supposition that the U.S. need not develop its coal 
resources to produce liquid transportation fuels. The short explanation 
is that resource availability and economics do not support this 
assumption. In order to match the current U.S. consumption of over 20 
million barrels of oil per day, two-thirds of which is converted to 
transportation fuels, a formidable amount of biomass would be required. 
However, a ratio of 30 percent biomass and 70 percent coal for 
synthetic fuels is much more plausible. For additional information, I 
refer you to the 2005 ``Hirsch Report'' that discusses peaking of world 
oil production and its impacts and mitigation alternatives.\1\
---------------------------------------------------------------------------
    \1\ Robert L. Hirsch, et al., Peaking of World Oil Production: 
Impacts, Mitigation & Risk Management, February 2005, available at: 
http://www.netl.doe.gov/publications/others/pdf/
Oil-Peaking-NETL.pdf
---------------------------------------------------------------------------
    The INL-Baard study of a notional 50,000 barrels per day synthetic 
liquids plant would use approximately 8,000 to 9,000 tons per day of 
woody biomass at 15 percent moisture content (harvested wood typically 
contains about 30-40 percent moisture). This material will need to be 
collected, dried, and ground to specifications meeting the gasifier 
feed system requirements. I cite with permission an example of a U.S. 
project currently under construction near Selma, Alabama that will 
produce dry wood pellets containing about seven percent moisture. This 
project, referred to as the Dixie Pellet project, will use biomass 
gasifiers to produce hot gas and substitute natural gas to produce 
pellets with minimum use of fossil-based energy. The exception will be 
the electricity used in the plant which will be purchased from a local 
utility provider. This plant, when operated at capacity, will produce 
upwards of 1,500 tons/day of dry wood pellets that could be readily 
shipped to a coal-to-liquids project. Hence, indications are that five 
to six comparable plants will support the biomass required for one 
50,000 barrels per day CTL plant using 30 wt. percent biomass with 70 
wt. percent coal. Whether the CTL plants purchase biomass collected and 
assembled by plants such as the Dixie Pellet Plant, or whether they 
implement in-line feed stock preparation is a matter of plant design 
choice and will depend on the region where the plant is located and the 
variety of biomass available. Biomass derived from switch grass, animal 
waste, and woody sources can all be gasified with an appropriate choice 
of gasification technology.
    Obviously, it will not be economically viable for all plants, 
especially plants located in the high deserts of the upper Rocky 
Mountain States, to collect or transport biomass from high growth 
regions of the United States. Some have suggested that the overgrowth 
of western forests would be a reasonable source of biomass for western 
plants. It is likely that logistics, economics, and environmental 
impacts of collecting dead or diseased timber for synthetic fuels 
production will rule out using this potential source of biomass for 
these synthetic fuels projects. However projects in western states (as 
well as other states), may take advantage of any of the following 
recommendations.

        1.  Begin with a plant design that maximizes the concentration, 
        separation, and capture of CO2. Approximately 50 
        percent carbon capture is readily attainable.

        2.  Implement energy saving technology, including, but not 
        limited to heat recovery cycles that can utilize the low grade 
        and intermediate grade steam that is produced by the Fischer-
        Tropsch reactors and integrated unit operations.

        3.  Consider co-locating the CTL plant with other renewable 
        energy providers such as wind power turbines to offset the GHG 
        emissions resulting from the plant. In this manner, higher 
        ratios of product recycle would be incorporated into the plant 
        while using a significant portion of ``green'' power for the 
        plant auxiliary loads.

        4.  Locate the CTL plant near the mine mouth, and where 
        possible, in proximity of existing refinery industry to 
        minimize the greenhouse gas emissions associated with 
        transportation of the feedstock and plant products.

        5.  Select coal resources that are near the surface to minimize 
        greenhouse gases associated with coal-bed methane releases and 
        resource production. Western coal mines typically release 
        significantly less CH4 and CO2 greenhouse 
        gases than eastern coal mines.

        6.  Consider biomass transportation costs and logistics when 
        trains moving coal to energy importing states in the East and 
        Southeast return with biomass from high growth biomass regions.

    Expanding on the second recommendation on this list, I am 
personally aware of, and have technically reviewed one closed-loop heat 
recovery technology that is capable of recovering and converting 95 
percent of the energy contained in the copious amount of low-grade and 
intermediate-grade steam produced by a Fischer-Tropsch plant into 
electrical power. These developing concepts take advantage of low 
boiling point fluids that can condense the steam, thus eliminating the 
cooling tower loads while increasing electrical power production by as 
much as 15-20 percent. This is an example of how impetus to improve the 
efficiency of a CTL plant will spur creative engineering aimed at 
designing more efficient and cleaner plants.

WATER RESOURCE REQUIREMENTS

    Let us now turn attention to water consumption concerns associated 
with synthetic fuels plants. In a recent workshop sponsored by the 
Gasification Technologies Council, I presented data that indicated the 
consumption of water in a coal-to-liquids plant could approach 15 
barrels of water per barrel of liquids fuels product for low moisture 
bituminous coal, and 12.5 barrels of water per barrel of liquid fuels 
for high moisture sub-bituminous coal. The basic problem is two-fold; 
first, coal does not contain the amount of hydrogen that is required 
for synthetic fuels production, and second, process cooling water and 
cooling tower evaporation rates in CTL plants are significant.
    Approximately five times the atomic ratio of carbon to hydrogen in 
coal is needed to produce synthetic natural gas (CH4) while 
approximately 2.5 times this ratio is needed to produce liquid fuels. 
Water (as steam) is used to make up the hydrogen requirements. This is 
currently accomplished by shifting CO and water (H2O) to 
hydrogen (H2) and CO2. The Fischer-Tropsch 
process converts a portion of the syngas to water (in the form of 
intermediate pressure stream) while producing the liquid hydrocarbon 
products. The general plant water use and rejection locations and 
discharges are illustrated in the figure below.



    In summary, process makeup water, cooling tower evaporation, and 
dirty process water discharges (i.e., blowdown) can be significant. 
Hence, water demand is a concern, especially in arid locations.
    A custom-design heat recovery system for combined-cycle power 
generation and process water recovery, treatment, and recycle can 
reduce the water consumption for bituminous coal-to-liquids plants from 
15 to 10.5 barrels of water per barrel of liquid hydrocarbon product. 
Combined use of moist biomass with coal can further reduce the process 
water requirement by one-half (1/2) barrel of water per barrel of 
liquid product. In this case, the plant water use is approximately 
apportioned among the following sinks:

          1.75 barrels of water per barrel of liquid fuels for 
        process requirements

          6.0 barrels of water per barrel of liquid fuels for 
        cooling tower evaporation losses and blowdown

          2.25 barrels of water for cooling tower evaporation 
        losses and blowdown associated with surplus power generation

    These relative figures hopefully contribute to the understanding of 
the water requirements for a CTL plant. Studies regarding water 
requirements vary widely, but are generally consistent with the plant 
design and reporting basis. The most important point to capture is that 
cooling tower losses and waste water blowdown constitute the majority 
of water required for a CTL plant (8.25 of 10 barrels for the INL case 
study). In order to reduce the water duty, gas-to-gas heat exchangers 
could for used for steam cooling. Alternatively, a closed-loop heat 
recovery system, such as that referred to previously in my testimony, 
would eliminate the cooling tower and water evaporation losses, while 
also increasing electrical power generation by 15-20 percent. 
Incorporation of a closed-loop heat recovery system would provide the 
joint benefit of reducing water use while reducing greenhouse gas 
emissions. Thus, the water requirement can be reduced to as little as 
3-5 barrels of water per barrel of synthetic liquid product.
    Another point to consider is the opportunity for CTL plants located 
near the coal mine to use coal-bed methane (CBM) produced water, or oil 
field water. For example, the Wyoming Coal Gas Commission estimates the 
potential water production from nearly 24,000 wells in existence in the 
Powder River Basin could yield upwards of 15 billion barrels of water 
over approximately 30 years. The water quality of a large portion of 
the PRB basin CBM water is adequate for direct use in a CTL plant. The 
salinity or hardness of the remainder of the water can be reduced with 
minimal water treatment, possibly comparable to the current cleanup 
requirements for much of the surface or well-produced waters used in 
power plants throughout the United States.
    If two-thirds of the estimated CBM produced water in Wyoming were 
used for CTL plants in conjunction with advance steam cooling 
technology, then there would be sufficient water to produce four 
million barrels of synthetic fuels per year over a 50-year period.\2\ 
This is equivalent approximately 25-30 percent of the transportation 
fuels currently consumed in the United States.
---------------------------------------------------------------------------
    \2\ (1,000,000,000 bbl-water)/(5 bbl water per bbl-fuel produced)/
(50 years) = 4,000,000 bbls fuel/yr for 50 years.
---------------------------------------------------------------------------

NEXUS OF CTL WITH NUCLEAR ENERGY

    It is also worth noting is the possible nexus of coal and 
unconventional fuels production with nuclear energy. With the 
electricity produced from a nuclear reactor it is possible to produce 
oxygen for a coal/biomass gasifier while concurrently producing 
hydrogen for the Fischer-Tropsch reactor. Future class nuclear reactors 
will also have the capability of boosting the pressure of the low-grade 
and intermediate grade steam to levels amenable for electric power 
generation by a steam-driven electrical power turbine-generator set. 
Consider also the possibility of co-electrolyzing CO2 with 
water inside a fuel-cell operated with power and heat produced by a 
nuclear reactor. In this application, the CO2 and water 
would be converted to CO, H2, and O2--all 
essential inputs to coal and biomass gasification and Fischer-Tropsch 
synthetic fuels production. Thus, the amount of carbon incorporated in 
the fuel could theoretically exceed 95 percent. Other studies funded by 
AREVA using Powder River Basin coal as the feed and an advanced 
generation nuclear power plant showed that greater than 96 percent of 
the carbon in coal could be converted to liquid fuels.

BENEFITS OF A HOLISTIC APPROACH

    The preceding discussion supports the argument for a holistic 
approach to energy and transportation fuel development that is 
protective of the environment, while giving adequate attention to 
sustainable and secure energy for the Nation's future. The urgency for 
clean energy need not come at the expense of national security. As the 
Nation moves forward using biomass and other renewable energy 
resources, and eventually with nuclear power and heat, it will be 
possible to again produce ammonia for fertilizer, chemical feedstock 
for consumer products, industrial gas for gas and steel production 
plants, and clean hydrogen for electrical power production (as known as 
FutureGen), hydrogen for sour crude and unconventional fossil fuel 
upgrading, and last, but not least, secure transportation fuels for the 
next century and beyond. This can be done while reducing greenhouse gas 
emissions. Failure to take on this leadership will only transfer this 
responsibility to future generations and foreign nations that will 
continue to produce the products demanded without probable control of 
greenhouse gas emissions. Failure to assume this leadership will also 
result in economic decline and increased national security risk. On the 
other hand, willingness of project developers and environmental 
protection organizations to accept coal conversion with biomass 
blending and carbon management will enable the U.S. to provide 
solutions to our global commons, while assuring secure, clean, 
efficient, and sustainable domestic energy for the future.
    Other system approaches could consider the use of high pressure 
CO2 slurries to transport western coal and CO2 to 
CTL plants and carbon sequestration sites in the East, with a return 
line bringing water from the East to the arid West as practical. The 
reality is that the U.S. is not short on viable solutions to build a 
clean, and secure CTL industry. Such ideas abound within the Nation's 
research academic institutions and national laboratories. The key for 
currently developing projects is to implement proven technology with a 
goal of reducing greenhouse gases and minimizing water use. This 
recommendation is consistent with other technical experts who have 
previously testified before congressional committees. It is consistent 
with DOE and Department of Defense objectives to establish a secure 
domestic supply of transportation fuels while simultaneously mitigating 
global climate impact concerns.
    I personally support efforts to convince the U.S. to conserve 
energy, while moving to a new fleet of hybrid cars and electrically-
driven commuter cars. I support accelerated development of wind and 
solar energy, as well ``smart'' deployment of nuclear electrical power 
generation. I support a movement to develop biomass as a national 
resource, and the associated deployment of a system to improve yield, 
collection, preparation, and transportation of this resource to points 
of efficient conversion into energy and transportation fuels. However, 
I also believe the pending peaking of oil production, as well as 
diminishing domestic reserves of natural gas, in parallel with global 
energy demand projections and the acute need to address climate change 
point to the urgency for the United States to begin unprecedented 
efforts to begin building plants for transportation fuels from the 
Nation's abundant supply of coal with biomass. It is both in the 
interest of national security as well as global environmental 
protection. The example established by the United States can serve as a 
model for other countries to follow. This task cannot be left purely to 
the market place, since it is not presently the lowest cost method to 
produce electricity, natural gas, ammonia, chemicals, and 
transportation fuels. It is for these reasons that ``big oil'' is not 
currently investing in the development and construction of CTL plants 
in the United States. Therefore, federal incentives to move to a 
synthetic fuels industry are necessary for timely market entry--in a 
manner that is protective of the environment. Establishing necessary 
greenhouse gas reduction targets will impact the economics and risk of 
the first U.S. plants; hence, assistance in the form of loan guarantees 
and tax advantages will help establish this vital industry ahead of 
significant economic incentives.

ROLE OF FEDERAL RESEARCH

    In my opinion, the role for federal research is to press forward 
with its existing programs to promote commercial development of clean 
and efficient coal-to-liquids plants. Efforts that support the 
characterization of sites for CO2 sequestration should be 
accelerated in order to provide technically acceptable options for the 
first CTL plants. In addition, efforts to advance biomass gasification, 
particularly with coal blends, will help expand the current set of 
commercially available options. Ongoing efforts to improve and expand 
biomass feedstock collection and preparation options, as well as high-
pressure injection technology, are encouraged. Additionally, federal 
research aimed at demonstrating emerging heat recovery options is 
advised. Concepts that recovery the heat from low grade stream to help 
reduce water consumption while improving overall plant efficiency (thus 
further reducing greenhouse gas emissions) should continue to be 
validated through appropriate technology demonstrations supported by 
federal research funding.
    Process modeling of integrated CTL plants should also continue. 
These studies may include investigation of the technical feasibility of 
emerging heat recovery options. Process modeling can be complemented 
with academic research aimed at developing a deeper understanding of 
the fundamentals of Fischer-Tropsch reactor hydrodynamics and reaction 
processes. The benefit will be improved reactor designs for future 
plants and computational tools to help optimize operating conditions in 
first-of-kind CTL plants in the U.S.
    A study that addresses the feasibility of collecting, treating, and 
using coal-bed methane produced water would have significant 
ramifications on the impact of establishing CTL plants in some western 
states. This potential benefit may also apply in eastern and southern 
states. The study may also consider the use of this limited water 
resource for biomass growth and reclamation of coal mine terrain.
    Development of a national basis for estimating greenhouse gas life 
cycle emissions, inclusive of potential credits for co-generation of 
electrical power and other consumer products derived from a CTL plant 
is advisable. An acceptable arbiter of carbon emissions and credits for 
all possible energy platforms and co-generation plants will require 
careful and factual consideration of system interactions with the 
environment. The comparative INL-Baard life cycle emissions studies are 
considered accurate, but leave open the possibility of calculating 
other greenhouse gas emissions benefits associated with the non-
transportation products from a CTL plant. This merely points to the 
interdependence of energy with other consumer products and not strictly 
the transportation sector. Similar consistent calculation methods 
should be developed for other energy conversion platforms.
    Federal research covering infrastructure needs, including the 
capability of manufacturing and transporting gasifier and Fischer-
Tropsch reactor vessels to CTL projects locations is advised. One of 
the most significant cost and schedule impediments to establishing the 
CTL industry in the U.S. is the lack of heavy vessel manufacturing 
capability throughout the world. In order to establish greater 
independence from foreign controls, the U.S. may need to re-establish 
this capability. A social-economic study on the buildup requirements 
and logistics of this critical infrastructure component is recommended.
    A holistic approach to deployment of CTL plants with biomass and 
water resources, and nuclear assisted energy should be pursued as an 
out-reaching goal. Although this should not impede the first generation 
of CTL plants, such an outlook will help ensure optimal use of our 
nation's resources and environmental protection for future generations. 
As the Nation expands this industry beyond the first generation of CTL 
plants, it will become increasingly important to consider overall 
system performance.

CLOSING REMARKS

    I recommend a balanced federal focus on renewable energy and 
development of the Nation's coal. Mass deployment of ``smart'' hybrid 
and electrically powered cars should be pursued in conjunction with the 
development of synthetic fuels from coal. These two objectives are 
complementary and mutually compatible. In this manner, the U.S. can 
establish greater energy independence, while assuring there is a proper 
fuel choice for aircraft, shipping vessels, trains, heavy vehicles, and 
machinery that currently consume a high percentage of the petroleum-
derived fuels in the U.S.--namely diesel and jet fuels. The aims of 
environmental protection advocacy groups and the coal industry should 
not be viewed as being exclusive. A balanced portfolio of clean energy 
is needed, inclusive of coal utilization and conversion to electricity, 
chemicals, and transportation fuels. I believe it is possible to 
reverse greenhouse gas emissions when considering methods to reduce the 
greenhouse gas emitted from coal-derived fuels and chemicals. 
Incentives to encourage clean CTL projects are therefore both important 
and necessary.
    Federal and State governments can help build the supporting 
infrastructure necessary to propagate the synthetic fuels industry 
ahead of any imminent global energy crises. Absent from my testimony 
today, but of significance, is substantive argument to establish 
domestic capability to supply the steel, manufacture the vessels, and 
erect these plants before they become vitally necessary in a relative 
short time frame. The Federal Government can focus attention on 
rebuilding these capabilities by working with industry and equipment 
fabrication shops in various regions where coal-to-liquids plants will 
be constructed. There is a need to continue to build liquid product and 
CO2 pipelines, while providing practical and acceptable 
solutions for carbon management.
    In conclusion, moving forward with a set of clean CTL plants today, 
and the research roles identified earlier, responsible infrastructure 
can be established to help ensure our nation's energy and political 
security. Workforces can be trained and engaged and economic prosperity 
sustained by industrial construction and plant operations on home soil. 
The U.S. can provide technical leadership to other nations poised to 
utilize coal to meet their increasing energy demands.

                               Discussion

    Chairman Lampson. Thank you very much. Now we will move 
into the question period, and each Member will have five 
minutes. I yield the first five minutes to myself as Chairman.

             Water Consumption With Coal-to-Liquids Plants

    Dr. Boardman, let me start with you. In your written 
testimony you state that a coal-to-liquids plant could produce 
or could approach 15 barrels of water per barrel of liquid fuel 
product from low moisture bituminous coal and twelve and one-
half barrels of water per barrel of liquid fuels for high 
moisture sub-bituminous coal. How does that water requirement 
compare to conventional petroleum-derived motor fuel production 
now?
    Dr. Boardman. I am not sure that I can give you an exact 
answer, but, again, these plants require hydrogen. Carbon is 
deficient to that hydrogen, and so you need water, at least a 
barrel of water to make up the hydrogen needed to formulate the 
synthetic fuels. The majority of the water, Mr. Chairman, is 
actually consumed in the cooling towers that are used to cool 
the intermediate and low-pressure steam. And so in that part of 
the plant by that evaporative process of those cooling towers 
you lose copious amounts of this water.
    Chairman Lampson. Some strategies to change that?
    Dr. Boardman. Yes. That is where the need to upgrade the 
plants to these gas-to-gas heat exchangers then which would 
eliminate the duty on those cooling towers. Also, as we 
progress forward to look at these closed-cycle heat recovery 
loops that many are working on in the United States, that will 
also help.
    Chairman Lampson. And is there a role for federal research 
to help insure that those strategies become effective?
    Dr. Boardman. Yes. In that particular area I think a 
demonstration of some of these closed-loop heat recovery cycles 
is recommended.

                        CO2 Emissions

    Chairman Lampson. Okay. For both you and Dr. Bartis, you 
discussed the possibility of reducing CO2 emissions 
when biomass is blended with the coal during the liquid fuel 
process, and then, and when concentrated CO2 is 
separated from the syngas feed and sequestered, what are the 
technical challenges with combining coal and biomass in order 
to achieve a significant CO2 reduction target?
    Do you want to start or Dr. Bartis, you start, and then we 
will go to Dr. Boardman.
    Mr. Bartis. The gasification takes place at 15 atmospheres 
of pressure or so. So the challenge is getting biomass into 
that gasifier and going through that pressure change. And then 
once it is in the gasifier, you want to make sure that it 
doesn't interfere with the internal workings of a gasifier that 
has been designed for something else. So I think it is a pretty 
straightforward process that we have here. I mean, this is not 
science. It is technology and testing, but I think we need a 
few test rigs built, designed and built, and we need to make 
sure that this system works.
    We are handling solids, and whenever you handle solids, you 
have tremendous uncertainties. It is very hard to scale up, so 
the only way to make this technology truly commercial is to 
test it at some scale.
    Now, there is some experience in the Netherlands on using 
biomass for gasification, but it turns out these are very small 
amounts, and they are very special forms of biomass. They are 
not biomass types that typically would be found in the United 
States.
    So I think there is a real opportunity here to do something 
on a very short timescale.

                     Role of the Federal Government

    Chairman Lampson. Okay. So, again, is there a role for the 
Federal Government to plug in?
    Mr. Bartis. I think there are lots of uncertainties with 
regard to the future of coal-to-liquids in the United States, 
and I just don't see the private sector coming up with a lot of 
its own funds to move this technology forward. So I think there 
is a role for the Government.
    Chairman Lampson. Do you want to make a quick comment, Dr. 
Boardman?
    Dr. Boardman. Well, I concur, for feed injection high 
pressure is certainly an issue that can be further developed 
and improved, springing from the experience in Europe, but I 
might also mention that when we talk about biomass and coal 
gasification, sometimes we think that has to be done in the 
same gasifier. It is entirely feasible to do them in two 
separate gasifiers. These coal-to-liquid plants will require a 
battery of gasifiers. So it is possible to use already existing 
and proven biomass gasification technology, both in Europe and 
developing in the U.S., to gasify the biomass and the coal in 
two separate reactors, combining that syngas.
    But, again, I think those dry feed systems is probably the 
area where research focus could mainly be put.

          Can We Use the Hydrogen Extracted From This Process?

    Chairman Lampson. If I continue with my questions the way I 
am going, I am going to run out of time. So let me digress from 
what I intended to do and just ask a question that came up 
yesterday in some discussions with staff on this. And the 
process which I am trying to understand and I do not, I am told 
that a significant amount of hydrogen is separated from this, 
and if that is the case early in the process, why don't we just 
take the hydrogen and instead of taking it all the way through 
this entire process to make a different kind of fuel, why don't 
we use it when we are trying to build this infrastructure 
necessary to start to distribute? Can someone comment on that 
for me?
    Dr. Boardman. May I take a shot at that?
    Chairman Lampson. Please. Yes.
    Dr. Boardman. Well, certainly, you know, we have looked at 
a hydrogen economy, and hydrogen of itself is very difficult to 
transport about. It is, you know, a very light molecule.
    Chairman Lampson. Well, would it be better for us to put 
our money into the research to help solve that problem than the 
research to take this through all these different stages to get 
to where we are going?
    Dr. Boardman. I think the hydrogen economy is well in the 
future. I think that the coal-to-liquids plants are a bridge to 
that future, and I think the liquid transportation fuels, as 
well as synthetic natural gas, are very convenient carriers of 
that hydrogen.
    Chairman Lampson. Thank you very much.
    Mr. Inglis.

                    Coal-to-Liquids Versus Petroleum

    Mr. Inglis. I said to the Chairman, bingo. It seems to me 
that is quite the question is why invest in something that 
really is sort of like, well, I think when we are comparing 
coal-to-liquids to petroleum, we are really comparing Pintos 
and Vegas. Anybody remember a Pinto and a Vega? Some of the 
staff back here is too young to remember. Well, a Vega, my 
family had three of them. They had aluminum blocks or 
something. They fell apart after awhile. They were maybe--the 
Vega may have been better than the Pinto or the Pinto better 
than the Vega, but really, when you are comparing coal-to-
liquid and run it in a car, compared to petroleum, are we 
really talking about that kind of comparison rather than a 
really elegant solution that the Chairman was just talking to?
    You figure a way to get that hydrogen into that car. The 
only emission is water out of the back of the car. Right? You 
don't have this, Dr. Bartis mentioned we can deal with the 
national security issue, and I think that is correct. It seems 
to me if we used our own coal, we are clearing dealing with the 
national security. We are not getting all the way, which is 
also fixing the environmental challenge.
    So the thing that I found interesting about testimony from 
Dr.--let us see, Dr. Romm said and it will be interesting to 
hear Mr. Ward's response to this, that a carbon trading system 
would wipe out coal-to-liquids, destroy the economics of it. Is 
that correct?
    Mr. Ward. Not in our view because, again, the thing you 
have to, I think you had it right with the Pinto and the Vega. 
You know, we are not talking about coal-to-liquids being 
something that competes with hydrogen that is some number of 
decades in the future. We are talking about reducing our 
dependence on imported oil with a similar thing. So I would 
look at it from the perspective of the Pinto, I have to build 
and protect the system for protecting my imported oil 
resources, while the Vega is something that I can do here at 
home while we are working on whatever vehicle we want for the 
future.
    As far as your direct question on the carbon trading goes, 
the products are commodities. We are not talking about a new 
kind of fuel. These products will compete against the oil-
derived products in an open market, and our analysis shows that 
as long as oil prices remain above a certain level, $50 a ton 
or whatever, the impact of that carbon will, the carbon tax or 
whatever carbon regulation scheme will come into place, will 
wash out in that process. So we--I don't see it as a definite 
at all.
    Mr. Inglis. And Dr. Freerks had a comment about reducing 
the risk of price fluctuations. What would you recommend by way 
of strategies to reduce that price fluctuation?
    Dr. Freerks. My concern is that if crude oil drops 
precipitously, it will wipe out the economic benefits of 
building CTL plants, and I think the economic value for CTL 
plants is in the 45 to $50 per barrel range. So we can make 
those plants pay back their loans and give the investors a good 
return at a reasonable price for crude. But we need price 
stability and a collar on the lower end of that price in order 
to get the investors to be willing to put money into those 
plants.
    Mr. Inglis. Are you telling me a floor on prices, a floor 
on crude oil prices?
    Dr. Freerks. Yes.
    Mr. Inglis. Is that what you are talking about?
    Dr. Freerks. Just a guarantee that the prices will not drop 
below a certain level, which will just insure the economic 
viability of these plants' future, and we are not then 
dependent upon foreign sources of crude to fuel our economy and 
protect our----

                            Coal Production

    Mr. Inglis. Dr. Hawkins, you had some different numbers in 
an MIT study that was mentioned in the charter for this 
hearing. You said that, MIT apparently says that switching or 
to replace 10 percent of the fuel consumption they say, I think 
it was your number, too, 10 percent. They say that it takes, it 
would take 250 million tons of coal per year. You said, I 
think, 470 million tons. They say it would require a 25 percent 
increase in our current coal production. You said a 43 percent. 
You are disagreeing with the MIT study I guess?
    Mr. Hawkins. My numbers are taken from the National Coal 
Council report, and they are aimed at a target of 10 percent 
reduction in the year 2025, forecasted oil consumption, which 
is larger than today's oil consumption. So you have two 
numbers; one, the larger amount of oil consumption in 2025, 
which is about the earliest that you would expect this industry 
to get spun up to a size where it could conceivably make that 
kind of a dent and using the technology efficiency numbers that 
the National Coal Council used. I don't know what efficiency 
numbers MIT used.
    Mr. Inglis. Thank you. Thanks, Mr. Chairman.
    Chairman Lampson. Mr. McNerney, you are recognized for five 
minutes.
    Mr. McNerney. Thank you, Mr. Chairman. Thanks panel members 
for coming this morning. This is a set of very interesting 
testimony, and there is a lot of disagreement I see between the 
panel members.
    Dr. Bartis and Mr. Hawkins both mentioned what I think is 
the very fundamental quandary that we are facing; how do we 
reduce our dependence on imported oil while reducing the 
production of greenhouse gases, and our national security 
depends on this, our economy depends on this, the environment. 
It is a very difficult, complicated question. So I appreciate 
the time and effort that you are putting into it.
    It is important to be open-minded about CTL, but I have 
grave concerns, especially for surface mode of transportation. 
Air transportation may be a little bit more interesting, but 
for surface mode I think we have grave problems.

              Greenhouse Gas Emissions--Cost and Viability

    My question, the first question is Dr. Freerks, there are 
two issues I would like you to address; the greenhouse gas 
emissions, the cost and viability. In my mind I don't see any 
basis for what it is going to cost to sequester greenhouse 
gases, and also, the technical viability of that process. Is it 
safe? We don't know too much about that yet, so building an 
industry, assuming that that is going to be a good process, it 
is very, very risky.
    The other question is something that has been brought up, 
water usage. How do you see that playing out in the long run? 
Water is going to be even more valuable than oil. It already is 
in some situations. So both in terms of usage and in terms of 
pollution, when the coal is mined.
    Dr. Freerks. Let us first start with carbon capture and 
sequestration. The coal-to-liquids process inherently captures 
CO2 in several places in the plant. We gasify coal, 
and we capture the CO2 from that gasification 
process. We run the synthesis gas, carbon monoxide and 
hydrogen, through a Fischer-Tropsch reactor, which in our case 
produces more CO2 while shifting the carbon monoxide 
to hydrogen. And we capture CO2 from that part, too. 
So we can capture CO2 quite readily in our plants 
with no additional cost because the equipment is there for 
other reasons.
    Now, the sequestration part of that is a separate question, 
and we have addressed that in our Natchez plant by teaming up 
with Denbury Pipeline, who is moving CO2 from 
natural sources right now to oil fields for enhanced oil 
recovery. And the amount of CO2 that we produce is 
equivalent to roughly one barrel of crude oil produced for 
every barrel of F-T produced. And although people may argue 
that that does not net decrease the greenhouse gas emissions 
because you are just trading CO2 put into the ground 
for fuel brought up, it does increase our energy security, and 
we are going to burn that fuel anyways whether we burn it from 
imported crude or we make the crude here. It just changes where 
we are going to pay for that crude. So it is probably better to 
use our own domestic resources than it is to produce external 
resources and bring them in.

                              Water Usage

    The other question you had was on what? The water use?
    Mr. McNerney. Water usage.
    Dr. Freerks. Okay. In the Natchez plant we have Mississippi 
River water for cooling, so water use is not an issue in that 
plant. We have looked at designs for plants that are capable of 
being put in dry climates like Wyoming, and they actually will 
not use any more water than they produce. When you produce a 
barrel of crude oil with the Fischer-Tropsch process, you 
produce a barrel of water, and that water can be condensed and 
recycled through the process, and you have no net usage of 
water. And that is an engineering design.
    Mr. McNerney. So you are saying that you use a barrel of 
water in the process and then you produce a barrel of water at 
the end of the process? Is that what you are saying?
    Dr. Freerks. You can design the plant such that you are net 
neutral on water. It is an engineering issue. It is a cost 
issue, but it can be done.
    Mr. McNerney. That seems farfetched to me.

                 Limitations of Domestic Coal Resources

    Mr. Ward, you have referred to abundant coal resources, and 
if we move forward with coal-to-liquid displacement of 
petroleum for surface transportation, what limitations do you 
see on the domestic coal resource? This was an issue that was 
brought up by one of the other panelists. What limitations are 
there?
    Mr. Ward. There have been two studies completed in the last 
year, one by the Southern States Energy Board and one by the 
National Coal Council, but both took a hard look at the 
availability of coal, and both determined that our coal 
resources in the United States are more than adequate to 
accomplish this kind of a scale up and use the coal resources 
for transportation uses in addition to electricity generation.

                               CTL Waste

    Mr. McNerney. We will have to study those reports. And you 
also talked about CTL being a clean resource, and while the end 
product is clean, clearly, it looks clean anyway. I didn't open 
it up and smell it, but I didn't want to get it on my suit. But 
how much waste is produced in producing a barrel of liquid, and 
how toxic is the waste? And what do you do with it, not even 
considering the carbon dioxide?
    Mr. Ward. Well, I am going to defer to one of the 
scientists with us, but the waste products from a coal-to-
liquids plant are very similar to what you would see in an oil 
refinery.
    Dr. Boardman. If you would like me to answer that.
    Mr. Ward. You have got a gasification slag product, which 
is a solid product, which is also very similar to the coal 
combustion products you have from a coal-fueled power plant, 
the residual solids. They are non-hazard. They are classified 
non-hazardous waste in this country.
    Dr. Boardman. Having been involved in the intimate details 
of such a design and seeing one on the Baard Energy Project, I 
can comment to that. It is the ash product coming from the coal 
and the biomass that might be used. There will be some air 
emissions discharges. Those will be relatively clean because 
this process takes out all of the toxic metals in that coal, 
the mercury, arsenic, and other things, as well as a lot of the 
unburned hydrocarbon. So you basically are generating some 
power in that plant, but it is a combined cycle power, very 
clean on that discharge point. It does have some CO2 
in it that is opportune to remove in the future, but apart from 
that the water discharge also needs to be cleaned up but 
conventional technology exists to do that.
    So on that basis it is, again, comparable to a pulverized 
coal-fired power plant that has to clean up its water 
discharges.
    Chairman Lampson. Dr. Bartlett, five minutes.

                            Plug-in Hybrids

    Mr. Bartlett. Thank you very much.
    There is an article recently that said that our usual 250 
years projection of coal use might more appropriately be just 
100 years. That is probably because at current use rates, they 
are just projecting from our current use, and we are really 
increasing our use of coal a bit over two percent a year. If, 
by the way, you increase the use of something just five percent 
a year, that doubles in 14 years, it is four times bigger in 28 
years, it is eight times bigger in 42 years, and it is 16 times 
bigger in 56 years.
    So if, in fact, we have 100 years of coal at our present 
rate of increase in the use of coal, if we increase its use 
just five percent, I think that would be a low figure if we are 
going to make any meaningful impact, then it is, we are going 
to run out of coal pretty darn quickly, aren't we?
    You mentioned the evaporation of water and how much water 
it took, that is really double sin, isn't it? You are using 
precious water, and it takes a lot of energy to do that. You 
are wasting a lot of heat doing that. When the President said 
we were hooked on oil, he was exactly right. We are so hooked 
on oil that we become irrational when we are talking about 
alterative energy uses.
    You know, we were talking about hydrogen. Why don't we just 
use the hydrogen? Well, you always use more energy producing 
hydrogen than you get out of it. Why wouldn't you just go back 
to the original energy source and use that? If you are talking 
about using coal, why don't you just burn the coal? There is no 
better way to get energy out of almost any product than simply 
to burn it. And if you are doing that where you can use the 
excess heat instead of stupidly evaporating precious water, 
then you have a double increase in the efficiency.
    Am I wrong? Doesn't it make any--by the way, and if you 
want to get a lot of duration from your plug-in hybrid, instead 
of stopping to refuel your car, simply stop to switch 
batteries. And you can now drive an infinite distance with a 
plug-in hybrid, can you not?
    If I am not wrong in all of this, does it make any sense to 
talk about coal-to-liquids? Why don't we just burn the coal and 
produce electricity and use plug-in hybrids?
    Mr. Hawkins. Well, I would agree 100 percent with that. I 
mean, I think, you know, electric motors are very efficient, so 
if you can generate electricity, you can use it very 
efficiently, and I think plug-in hybrids are the vehicle of the 
future. I think there is no question that if you take the coal 
and burn it in a gasification plant and capture the carbon and 
store it, you would actually have carbon-free electricity. So 
you would be running your car on carbon-free electricity. If 
you do CTL, if you do liquid coal with carbon capture and 
storage, you are still running your car on diesel fuel. You 
have not solved the global warming problem at all, but you have 
spent a bundle of money to get you nowhere.
    So I couldn't agree with you more.
    Dr. Boardman. Except that when you burn that coal in those 
power plants, you need the same water to cool that steam that 
you make. The process----
    Mr. Bartlett. I would use that for district heat. All over 
the world they place their power production plants where there 
are people so that they can use the excess heat for what is 
called district heating. In the summertime you can simply use 
an ammonia cycle, refrigeration and cool your homes with this 
excess heat. What we do is really dumb, and we need to stop 
doing it, do we not?
    Dr. Boardman. Yes, and that same steam, though, could be 
taken off that coal-to-liquids plant and used the same way. It 
is the exact same steam, it is the exact same quality of heat.
    Dr. Hawkins. If I could just add a word about the elephant 
in the room and that is energy efficiency, this is the long 
pole in the tent if you are worried about oil dependence and 
global warming. We can back out more oil with smarter cars, 
smarter transportation systems. We can back out more global 
warming emissions with that, and we can give Americans 
increased choice, vehicles--people don't buy vehicles because 
they burn lots of gasoline. They buy them for the services they 
provide, and if we have intelligent policies that are designed 
to deliver vehicles that people want to drive, we don't need 
price supports for minimum prices of oil. Those vehicles are 
going to provide value to American consumers whatever the price 
of oil is.
    Mr. Ward. I would just agree. I would agree entirely that 
plug-in hybrid vehicles are a place we need to go. The energy 
efficiency is a place we need to go. Coal-to-liquids is a 
bridge technology. It is not the ultimate technology. The 
problem with plug-in hybrid vehicles is we have got to make 
millions of them and convince people to buy them and use them. 
There are no plug-in hybrid airplanes, there are no plug-in 
hybrid locomotives, there are no plug-in hybrid big yellow 
machines that build things and long-haul trucks and those kind 
of things. We will continue to use liquid fuels for those types 
of things.
    And one other clarification on the brief discussion on 
price supports for deployment of coal-to-liquids facilities, I 
don't think anyone in the industry is looking for that as a 
permanent solution. When we talk about commercialization 
incentives, we have a commercialization gap where we need to 
convince Wall Street that the first few of these plants can be 
built. So when you are looking at some sort of a mechanism to 
insure against price volatility in oil markets, you are only 
looking at that for the limited purpose of the first few coal-
to-liquids plants so that you can get this industry kick 
started. And after that, let the industry compete against oil 
resources and others to fill that continuing demand we are 
going to have for liquid fuels while we wait for efficiency and 
plug-in hybrids to take hold.
    Mr. Bartlett. What you are saying about trucks and trains 
and airplanes is, particularly for airplanes is exactly true. 
They have got to have a liquid fuel. But a large part of the 
liquid fuels we use are in automobiles, and we can do something 
about that, can we not?
    Thank you, Mr. Chairman.
    Chairman Lampson. Thank you, Dr. Bartlett.
    And now, Mr. Costello, five minutes.
    Mr. Costello. Mr. Chairman, thank you, and thank you for 
calling this hearing today.

              Running Aircraft Engines on Coal-to-Liquids

    Mr. Ward, I appreciate you making the comment that there 
are airplanes and locomotives and other road-building equipment 
and other vehicles that have to run on liquid fuel. Both you 
and Dr. Freerks made the point that the Department of Defense 
has been a leader in moving to clean coal technology and also 
to coal-to-liquids. And there has been some discussion, I 
think, and some skeptics in the past saying, do you have to 
modify aircraft engines in order to run them on coal-to-
liquids.
    And Mr. Ward, I think I heard you say earlier that one is 
that CTL is not a new kind of fuel, and two, is that you do not 
have to modify existing engines to run them on CTL. Is that 
correct?
    Mr. Ward. That is correct. You are making gasoline, diesel 
fuel, jet fuel. Those fuels can be used directly, they can be 
blended with petroleum-derived fuels, they can be distributed 
in existing pipelines and service stations. You know, this is--
and that is no small issue. When you look at new types of fuels 
coming into play for the United States, you are also going to 
not only build the vehicles that run on those fuels, you are 
going to have to build the delivery systems for getting those 
fuels to market. Ask anyone who tries to drive E-85 in lots of 
states in this country, you know, where they can find those 
things.
    One of the advantages to CTL as a bridge technology is we 
can put it into the existing pipelines, the existing vehicles, 
and reduce our dependence on imported oil right now.
    Mr. Costello. So for those who have questioned do you have 
to modify, does DOD have to modify the engines, they do not? 
Jet Blue and some of the other airlines are looking at CTL. Dr. 
Freerks, it looks like you want to make a comment here.
    Dr. Freerks. I have been involved with the development of 
the F-T fuel with the Department of Defense for about eight 
years, and the only concern that they really have is that they 
have not seen this fuel in their engines before, so they are 
testing to make sure that it does work. And so far all the 
tests show that there is no modification needed, other than 
that you can get more efficiency out of the fuel if you design 
the engine to actually run on that fuel. We can run it on the 
existing engines, but we can actually do better, and even NASA 
is looking at designing spacecraft to run on the F-T fuels 
because it provides a cleaner way to get into space than many 
of the other alternative fuels that they have been using.
    So there are many advantages to this fuel. It is not only 
just a replacement for conventional fuels. It is an enabling 
fuel for both the turban engine and the diesel combustion 
engine where we can design the engines to be both more 
efficient and lower polluting because the fuel itself burns so 
much cleaner than conventional fuels which contain aromatics 
and sulfur.
    Mr. Costello. And it is my understanding that the 
Department of Defense, the Air Force in particular, has just 
certified a CTL blend to be used for the B-52?
    Dr. Freerks. Correct.
    Mr. Costello. And that just took place just a few weeks 
ago. Is that correct?
    Dr. Freerks. Correct.

                          Carbon Sequestration

    Mr. Costello. Mr. Hawkins, my understanding from your 
testimony is that you indicate that carbon sequestration makes 
sense for coal electricity generation but not for CTL. I wonder 
what you believe are the appropriate federal initiatives for 
developing the sequestration used for electricity production.
    Mr. Hawkins. Thank you, Mr. Costello. Actually, we believe 
that carbon sequestration or carbon capture and storage makes 
sense for any use of coal. What we question is using coal to 
make liquid fuels. We think that a better way to back out oil, 
if you are going to use coal, is to make electricity with that 
coal and then use it to make plug-in hybrid vehicles. We think 
that can deliver more barrels of oil per ton of coal with many 
fewer greenhouse gas emissions.
    So instead of, you raised the aircraft issues, we need to 
look at this as an overall resource, and efficiency driven 
through plug-in hybrids can free up barrels of oil that then 
can be available for other uses such as aircraft.
    So instead of spending lots of money to produce a new fuel 
for the Air Force, why not look at the U.S. Postal Service, 
have that fleet converted to plug-in hybrid vehicles, why 
doesn't FedEx look at converting its ground fleet to plug-in 
hybrid vehicles, and free up all or a part of the needs for the 
aircraft that need it.
    Mr. Costello. Dr. Boardman, do you have a response to Mr. 
Hawkins' statement?

             Reasons to Start Investing in Coal-to-Liquids

    Dr. Boardman. Thank you. I do. I will maybe add a new 
perspective here. When you look at the oil reserves to the 
production rates, you can look at British petroleum statistics 
published two years ago that indicated all of North America, if 
we continue at the rate of production, we will deplete those 
reserves within ten years. And so that means that we have got 
to look towards, when we are looking at all of the 
transportation vehicles and the heavy vehicles, our demand for 
that oil, if that oil depletes and national security risks go 
up correspondingly, we need to have an ability to generate that 
fuel in terms of national security.
    And I think it is important for us to begin to establish 
that infrastructure now to be able to do coal-to-liquids 
because it does take time to do that. It takes time to build 
that, it takes heavy equipment and vessels. We don't have that 
capability nor that experience.
    So the first few plants could establish that capability so 
when those declining reserves do eventually meet up to us, we 
are prepared to have an alternative for that liquid fuel.
    Mr. Costello. I thank you, and I thank you, Mr. Chairman.
    Chairman Lampson. Thank you, Mr. Costello.
    Mr. Hall, five minutes.
    Mr. Hall. Mr. Chairman, thank you.

                        Should Carbons Be Taxed?

    I have listened here and read some of your testimony. I go 
back to the reason we are here and what we are doing here and 
the major duty of a member of Congress, probably one of the 
major duties is to prevent a war. And right now today the major 
war I see by some of you on the panel there is a war against 
energy. You are knocking fossil fuels. You are knocking coal.
    I guess to Dr. Hawkins and Dr. Romm, I would have to say 
that I just disagree with you. You are both pushing the fear of 
global warming, yet you don't have any answer for the cost of 
it. I just would like to ask Dr. Hawkins if you and the NRDC 
and Dr. Romm, if you and the Center for Energy and Climate 
Solutions, and I think this follows the question Dr.--
Congressman McNerney was asking about, I guess I would ask Dr. 
Romm, do you really believe that you ought to tax carbons? Is 
that your, isn't that your testimony?
    Dr. Romm. No. Well, I would prefer a cap and trade system.

                           Price of CO2

    Mr. Hall. Well, yeah. You would prefer to explain it 
away. Let me read it to you. I think you said, ``Instead of 
promoting liquid coal, Congress must address the climate 
problem by establishing a cap on emissions that creates a price 
for carbon dioxide.'' What do you mean by that? If that is not 
a tax.
    Dr. Romm. Well, taxes go to the Government, and in a cap 
and trade system the revenue is, typically goes, you know, is 
circulated in the economy to find the lowest price for avoiding 
carbon dioxide emissions. So----
    Mr. Hall. Yeah, but there is a bump in the road there and 
either way you go it runs the price of gasoline up. Now, please 
pick that up and explain it. Be practical with me, not 
theoretical.
    Dr. Romm. Sure. Let us be clear. There is no question that 
if you put a cap on emissions, carbon dioxide will have a 
price. But you have all these panelists here who are telling 
you that they are going to capture carbon dioxide from the 
coal-to-liquids process and bury it. Well, they won't spend a 
penny doing that unless there is a price for carbon dioxide 
that gives them a reward for that.
    Now, I think what Dr. Hawkins and I would say is that if 
you combine energy efficiency with a switch to cleaner fuels, 
you have the possibility that the fuels may cost more but 
because you are using them more efficiently, your energy bill 
won't go up. And when I was at the Department of Energy we did 
a study with five national laboratories which showed that you 
could substantially reduce the greenhouse gas emissions of the 
United States of America without increasing the Nation's Energy 
Bill. And that is what our goal is, but there is no question 
that the price of carbon-intensive fuels has to go up. If the 
price of carbon-intensive fuels doesn't go up, why would 
anybody use less of them?
    So, yes, we are in, you know, I am certainly in the camp 
that global warming and, you know, this is a Science and 
Technology Committee, and the scientists of the world have 
spoken earlier this year in the Inter-Governmental Panel on 
climate change----
    Mr. Hall. Why do you express all your fears about global 
warming, though, and you never set forth a way to pay for it? 
Now, you, yourself, know that China is not going to do anything 
but increase the intensity of the damage to the air, and yet 
take all of our jobs over there, and they are not going to pay 
15 cents to help our companies, our energy companies set forth 
energy to use at a decent figure. Neither is Russia, neither is 
Mexico, neither is India. I can go on down the road.

         Why Not Coal-to-Liquid to Help Address Global Warming?

    Why would you set forth the great fear of global warming 
right now and not be pushing for technology like coal-to-
liquid, like we have suggested here and use the abundance of 
coal that we have in this country to offset the fear of 
terrorists that threaten us? And it is a national security 
issue.
    Dr. Romm. Well, I am a big fan of reducing oil consumption. 
I wrote an article entitled, ``Mid East Oil Forever.'' I think 
it is just important to understand that there is no point in 
addressing the energy security problem in a way that makes it 
harder to solve the global warming problem. I don't think there 
is any question that the scientific consensus on global warming 
is clear. We have to reduce emissions, and I think there are a 
lot of bills before Congress that would do just that. Coal-to-
liquids does not address the global warming problem.
    Mr. Hall. In any way?
    Dr. Romm. In any way whatsoever, no, because you are left 
with diesel fuel. Even if you cap----
    Mr. Hall. Global warming. Oh, no. I agree with you on that.
    Dr. Romm. Okay. Then we are in agreement.
    Mr. Hall. No. We are in great disagreement.

                     Is Energy Security Important?

    Let me ask you and, let me ask Dr. Hawkins how he and NRDC 
feels and you, Dr. Romm, how the Center for Energy and Climate 
Solutions feel. Let me ask you a simple question. It doesn't 
mean to be an insulting question, because I know your answer is 
going to be yes. Do you believe energy security is important? 
Your answer is yes, isn't it? For both of you.
    Mr. Hawkins. Yes, of course.
    Mr. Hall. So if using carbon capture and storage technology 
can give CTL a better life, a better life cycle, greenhouse gas 
profile than imported petroleum and a much better performance 
in the area of criteria pollutants, why wouldn't the NRDC 
support this, and why wouldn't the Center for Energy and 
Climate Solutions support that?
    Mr. Hawkins. The question, Mr. Hall, is not whether we 
support backing out oil with domestic resources. We do. What we 
are trying to urge this committee to look at is what is the 
best way to do this. We have raised a number of questions about 
why we think coal-to-liquids is not the best way to back out 
oil, it is not the best way to use coal to back out oil. These 
are questions that if you don't look hard at them, you are 
going to make mistakes, and those mistakes are going to 
interfere with the objective of getting energy security, and 
they are going to hit American taxpayers with bigger bills than 
they need to pay.
    Those are the questions we are asking you to take a hard 
look at.

              Should We Increase Domestic Oil Production?

    Mr. Hall. Okay. If you are opposed to CTL, are you 
supporting more domestic production of oil then in order to 
help our national security and decrease our dependence on 
foreign oil?
    Mr. Hawkins. Well----
    Mr. Hall. It is all fossil fuels, isn't it?
    Mr. Hawkins.--we have supported enhanced oil recovery 
because we do think that it is better to get additional barrels 
of oil out of already producing fields than it is to go into 
either unsecure areas of the world or go into pristine areas 
so----
    Mr. Hall. Not drilling on Anwar and in the Gulf and 
offshore Florida?
    Mr. Hawkins. We think there are----
    Mr. Hall. Do you recommend that?
    Mr. Hawkins.--a few places----
    Mr. Hall. Yes or no? Do you recommend that, sir?
    Mr. Hawkins. We do not recommend drilling in the Arctic 
National Wildlife Refuge (ANWR). We oppose that. We do support 
drilling in the Gulf of Mexico where existing production is 
doing just fine, thank you, and we support a wide range, which 
is outlined in my testimony, of producing resources both U.S. 
biofuels resources, as well as, as I will repeat it again, 
efficiency can deliver more barrels of oil equivalent than any 
other tool in the toolbox.
    And I would just state American consumers don't value 
barrels of oil. They value mobility, and if you can deliver 
that mobility with smarter cars that use fewer barrels of oil, 
then we are better off from an energy security standpoint, and 
we are better off from the standpoint of our wallets.

                      Construction of Power Plants

    Mr. Hall. Last question. You advocate the use of plug-in 
hybrids. Do you therefore support the construction of a new 
coal-fired electric generation plant? I support nuclear powered 
electric generation plants. Do you support those? They add much 
needed generation to the grid.
    Mr. Hawkins. We think that new power plants should be 
designed to be the cleanest possible power plants. We are not 
picking technologies for new electric power plants. We just did 
a research report with the Electric Power Research Institute. 
We will need additional electric power capacity. We think we 
can do a lot more on renewable, wind and solar electric 
sources, and we are really pleased that the State of Texas is 
doing such a great job on wind-powered electricity. It is 
growing faster than any other source of electricity in Texas, 
and your state is a real leader in that area.

                    More on Domestic Oil Production

    Mr. Hall. Yeah. We are going about two percent of the 
energy. That is a big deal. Actually, ANWR, when you oppose 
ANWR, I guess it is because it is too pristine, and you want to 
save it and not damage little ANWR. It is just 19 million acres 
up there, and the bill calls for drilling on 2,000 acres, and 
it is equivalent--I will be practical with you and not 
scientific.
    It is equivalent to saying if you take a football field, 
and you lay a dollar bill down in the end zone, you ruin the 
whole field. That is outrageous, and you know it.
    I yield back my time.
    Chairman Lampson. Mr. Wilson, five minutes.

                      CTL as a Bridging Technology

    Mr. Wilson. Thank you, Mr. Chairman. Gentlemen, thank you 
for being here today.
    I have a special interest in this because as Dr. Boardman 
talked, the proposed Baard Energy Project would be in my 
district, where we also, Mr. Hawkins, we made lots of 
electricity along that Ohio River corridor in Ohio from 
Youngstown down to Cincinnati.
    What we are trying to do is to find alternate ways to be 
able to make ourselves less dependent on foreign oil, and I 
believe in, not only because of the fact that we have the 
proper things to bring it together in our district, we also 
have the need in our country. And to know that this fuel can be 
burned as clean or cleaner than what we are burning and we are 
not paying for it to a foreign source, I think is very 
important.
    One of the things that Mr. Ward talked about that I thought 
was extremely important for everyone to understand and 
conceptualize about this is that the CTL is actually a bridge 
to technology, and I wanted to ask you, Mr. Ward, if you would 
continue on that, expand on it, because I think it would answer 
some of the questions where folks were saying that we only have 
coal for 100 years. Well, 100 years is a long time.
    But if you would, if you would talk on that as to what 
really is the effect of CTL.
    Mr. Ward. Well, and, again, I think it is important to 
remember that we are trying to deal with two issues at the same 
time here; one being an energy security issue and the other one 
being a climate change issue. And they are both crucially 
important, and I think some of the tension in this debate comes 
when we try to put one over the top of the other.
    What we are talking about with coal-to-liquids is using a 
domestic resource that we have to replace a resource that 
exacts a tremendous cost on our nation and our economy to 
protect the access to it in other parts of the world, largely 
from places where people don't necessarily like us. And so it 
is to take nothing away from the need to do more for energy 
efficiency, to do more for new types of vehicles. You know, the 
hydrogen economy, if we can ever get to that would be a 
wonderful place to be, but the reality is our production and 
refining base today is at its maximum level. Our refining 
facilities are located in places that are vulnerable to 
terrorist attacks and to natural disasters like hurricanes. We 
need to do more to use the resources we have and expand and 
diversify our resource base for producing the fuels for the 
vehicles we drive today.
    Mr. Wilson. And I think it is going to take, and please, 
anyone of the panel, if you will, please disagree with me if 
you do, but I think it is going to take the implementation of 
all these things, not just coal-to-liquid, not just wind, not 
just solar panels, but all of them, and the sooner we realize 
that and begin moving in that direction, I think the better off 
we are going to be.

                     CTL Success in Other Countries

    One of the points that I would want to ask to the panel is 
if coal-to-liquid is not the right way to go, why are so many 
other countries doing it and some becoming very successful with 
it? Does anyone have any comment on that?
    Mr. Ward. Well, let me just take a quick one and point out, 
for instance, China is a country that attracts a lot of our 
interest. China faces many of the same dynamics that we do. 
They are dependent on foreign sources of oil. In fact, they are 
dependent on the same foreign sources of oil that we are, and 
they are making some critical decisions right now as to what 
they need to do. They can invest billions of dollars to build 
pipeline capacity to bring more foreign oil from the coasts to 
their interior where the cities are growing, or they can invest 
those billions of dollars in developing the coal resources that 
they have in the interior for making liquid fuels from their 
own resources. They are, in fact, investing the billions to do 
more with the resources they have.
    I think that is, you know, the Philippines, India, a number 
of the growing Asian countries are making similar types of 
decisions, and it is easier for them to do it because the 
Government has a more direct role in building those first 
plants. The problem we face here in the United States is that 
we go to Wall Street and ask for the money, and until we get 
the first few plants built, there is a tremendous resistance 
from the private capital markets. Everybody wants to be the 
first person to build the fifth plant.
    Mr. Wilson. Have we not, Mr. Chairman, have we not always 
in America, though, the thing that has made us above and better 
than most others is the fact that we do provide the technology, 
and we are able to move forward with the challenges we have 
because we are willing to take the risks and to do what is 
responsible.
    Mr. Ward. Well, we are providing the technology that the 
Chinese are using----
    Mr. Wilson. Exactly.
    Mr. Ward.--to develop their CTL resources. So----
    Mr. Wilson. Yes. Mr. Hawkins.
    Mr. Hawkins. If I could comment. Again, the debate here is 
not about providing incentives for technologies to get the job 
done. The question is why pick a fuel and why pick a process 
when you are providing those incentives? Why not focus on the 
objective? If the objective is to back out oil, then give 
incentives that are open to all comers for processes that back 
out oil. If the objective, as we believe it needs to be, is to 
cut global warming emissions, then provide incentives for 
technologies that do a better job of that. Focus on the 
objectives. Don't try to pick the technology or fuel winner.

                            Investing in CTL

    Dr. Romm. If I could add two points. One is China appears 
to be scaling back their effort on CTL, and I posted on my 
blog, climateprogress.org, a couple of articles that go to that 
very point. So I think it is important to understand that CTL 
is not taking over the planet.
    I think the other important thing to understand is we have 
$70 a barrel oil. We do not have any CTL plants in this 
country. Now, people tell you, we could spend money to solve 
the water problem, make the plants more expensive. We could 
spend money to capture the carbon. No one is building these 
plants because they cost $5 billion for 80,000 barrels a day. 
They are phenomenally expensive plants. They are not profitable 
at current prices of oil. They are going to be infinitely less 
profitable if you try to deal with their water and their 
CO2.
    So it doesn't make a lot of sense for the Government to 
push CTL down the throats of consumers. They are just, they 
don't make a lot of sense economically or environmentally.
    Mr. Wilson. If I could comment on that, Mr. Chairman, I 
think there are two things in play there. Number one, why are 
we looking for coal-to-liquid? It is simply because we have an 
abundance of coal.
    And secondly, I believe it is very important to realize 
that this technology is something that is going to, if we are 
paying $70 a barrel now, who is to say we are not paying 170 a 
year from now? And so what this does if we get these plants up 
and going, it gives us some balance in which we need badly 
right now. Mr. Ward.
    Mr. Bartis. Can I comment? I am a little concerned because 
what I hear is a lot of second guessing of the marketplace here 
and what works and what doesn't work. The fact is is that we 
have a technology. It is one of the few choices that we have 
that is ready now. It is coal-to-liquids with Fischer-Tropsch. 
The problem with that technology is that we have got a concern 
with global warming, and we have not proven that we can 
sequester the carbon dioxide emissions. That is a fact.
    That fact says that we should not be putting together any 
incentive that promotes a large coal-to-liquids industry. It 
doesn't mean that we shouldn't invest small amounts of money to 
get some early experience, and there is a big difference 
between the Government trying to pick winners, rather than 
looking at coal-to-liquids first, as insurance, a small 
insurance policy.
    The other thing I wanted to say is that I think it is very 
important to endorse what David Hawkins has said, that we focus 
on objectives and not on technologies. There is too much 
willingness among all parties it seems to me to try to pick 
this particular technology or that technology. The true 
objectives are, you know, import less oil, use less oil, and 
put out fewer emissions of CO2.
    And addressing one doesn't mean you are going to fix the 
other one. For example, we know that if we pass legislation 
that puts a premium on carbon emissions adequate to sequester 
emissions for electricity production, which is about $30 I 
believe, a ton of CO2 according to the MIT study, 
that legislation is only going to raise the price of gasoline 
35 cents a gallon.
    This increase in the price of gasoline is just not enough 
to cause anyone to use less petroleum. So we need to think of 
disincentives or incentives, I prefer disincentives because 
they encourage efficiency in conservation, but we need to think 
of broad-based incentives and disincentives for using less 
petroleum and for reducing carbon dioxide emissions. That is 
the real key here.
    Mr. Wilson. And I, if I may, Mr. Chairman, I think that is 
wonderful in an ideal world, but we are in a real world, and it 
is a situation where we are going to have to do something with 
our energy dependence, and we need to be moving on it now.

                             CTL Emissions

    Thank you, Mr. Chairman.
    Chairman Lampson. Mr. Hill, five minutes.
    Mr. Hill. Thank you, Mr. Chairman. Gentleman, I am not a 
member of this committee, but I am very interested in this 
whole issue, because I am from Indiana, which produces a lot of 
coal.
    One of the things that I have learned in my years in 
Congress it is very hard to determine what the facts are in 
this city, and I have been listening to you for an hour now, 
and I still don't know what the facts are. So maybe we can 
clear up some of these things.
    Mr. Ward, you said that coal-to-liquids is cleaner than the 
way we produce gasoline today from oil.
    Mr. Ward. Yes, sir. The fuels that result from a CTL 
process are cleaner than the fuels that come from a 
traditional----
    Mr. Hill. Okay.
    Mr. Ward.--petroleum refinery.
    Mr. Hill. Dr. Bartis, you said coal-to-liquids will produce 
20 percent greater carbon emissions than oil.
    Dr. Bartis. They will produce much more than 20 percent.
    Mr. Hill. According to the Argonne National Labs. Who is 
right here? Are you right, or is Mr. Ward right?
    Dr. Bartis. Well, no. There are two different issues.
    Mr. Hill. Okay.
    Dr. Bartis. We are talking about two different things. One 
is the performance of the fuel after it is produced. The other 
issue is what of the greenhouse gas emissions in producing the 
fuel. If you look at a total fuel cycle basis, our 
calculations, and we have been very careful with this at RAND, 
our calculations show about 2.2 times as much as conventional 
petroleum. That is with nothing, not doing any carbon 
management at all. Just putting all the emissions into the 
atmosphere.
    Mr. Hill. So, Mr. Ward, how do you respond to that?
    Mr. Ward. Two ways. Number one, we need to separate the 
pollutants in fuel--sulfur, NOX, particulates, the things that 
make people sick--from the greenhouse gas, which is a climate 
change issue. On the pollutants issue there is no question that 
the CTL fuels are much cleaner than the petroleum fuels that 
they are replacing.
    On the greenhouse gas climate change issue, if you capture 
and sequester the carbon during the manufacturing process, you 
can make those CTL fuels on a life cycle basis be no worse than 
the petroleum that they are replacing.
    Mr. Hill. Okay. So someone said that the technology as it 
relates to carbon sequestration is not here yet.
    Mr. Ward. I would disagree with that, sir. The largest coal 
gasification plant in the country is in North Dakota, Dakota 
Gasification. It is 30 miles down the road from a coal-to-
liquids plant we are looking at building. They capture and 
sequester their carbon for enhanced oil recovery. All of the 
coal-to-liquids developers I work with in the United States are 
planning to capture their CO2 and sell it for the 
purposes of enhanced oil recovery.
    You know, as we look at needing to move to carbon capture 
and storage for the electricity generation sector, I think we 
would be missing an opportunity. Here is the CTL industry that 
is willing to embrace and deploy carbon capture and storage 
technologies on a large scale right now, these are the 
demonstration projects where we are going to learn the things 
we need to know so that we can go back and retrofit carbon 
capture and storage onto our existing base of electricity 
generation that produces 50 percent of the power in this 
country.

                              Coal Supply

    Mr. Hill. Okay. So let me switch then to what Congressman 
Bartlett has said. Are we going to run out of coal soon if we 
increase production by five percent?
    Mr. Ward. I do not believe we are. There is some noise on 
some newspaper article that appeared recently that was looking 
at known pieces. One of the things about coal that is similar 
to what it is about oil is you need to look at what these 
surveys are based on. Are the surveys based on the exploration 
that has identified the fields that are fully characterized, or 
are they based on what we know is out there and haven't gone 
looking for yet because there is no reason to. The studies I 
referred to earlier by the National Coal Council and the 
Southern States Energy Board have both identified more than 
ample coal reserves here in the country to support both 
electricity generation and transportation fuels.

                        More on Investing in CTL

    Mr. Hill. Well, then why isn't this happening, Mr. Ward? I 
mean----
    Mr. Ward. Well----
    Mr. Hill.--if it is a no-brainer, why is it not happening?
    Mr. Ward.--it will happen, and my position is that you will 
see a coal-to-liquids industry in this country. The question is 
how fast. The $70 oil price issue came up a minute ago. If my 
coal-to-liquids plant was running today in a $70 a barrel oil 
environment, I would be making good money with that facility. 
The question is when I go to Wall Street and say, please loan 
me $3 billion to build this plant, look at how good it is at 
$70 oil, they say, well, what is the oil price going to be in 
five years when you are paying back the loan after you build 
this?
    Mr. Hill. So what should we do?
    Mr. Ward. What we should do on the commercialization side 
is put in place a limited number of deployment incentives to 
take some of that oil volatility price risk, and there is two 
or three different proposals floating around on the Hill now 
that could do that. But for the first two or three plants or 
four or five, pick a number, plants, alleviate that oil price 
volatility factor so you can get those plants running. Then 
when you go to build the fourth and fifth plant, the people on 
Wall Street have something to look at, you have got a facility 
working.
    You know, we will get a coal-to-liquids industry, you know, 
oil keeps going up, it gets to $100, $120 a barrel, people are 
going to start building these things anyway. You can let it go 
that way, but that does nothing to address the energy security 
issue of reducing your dependence on foreign oil before we face 
another crisis.
    Mr. Hill. My red light is on. I have got like 100 more 
questions, Mr. Chairman, but I will let it go at that. Thank 
you.
    Chairman Lampson. Mr. Matheson, you are recognized.

                         More on CTL Emissions

    Mr. Matheson. Well, thank you, Mr. Chairman. Mr. Ward, I 
wanted to ask you a question first. What do you feel is an 
appropriate level of environment performance for CTL facilities 
that should be met in order to achieve some kind of federal 
financial support?
    Mr. Ward. I believe that the reason for pursuing coal-to-
liquids is as a bridge strategy to help us with energy security 
issues while we develop the fuels and the strategies of the 
future. Therefore, I believe if a coal-to-liquids facility can 
produce a fuel that is cleaner than the petroleum fuel that it 
replaces from a pollutant standard, and is better than the 
petroleum fuel it replaces from a life cycle greenhouse gas 
standard, that should qualify for deployment-type incentives to 
get these plants built.
    After that, these plants are going to be subject to the 
same regulations or regulatory regimes, whether it is a carbon 
tax or cap and trade system or whatever this Congress 
ultimately enacts to meet our greater goals of dealing with 
climate change----
    Mr. Matheson. Uh-huh.
    Mr. Ward.--these plants will also be subject to future 
reductions to meet that system. And we will do those things 
through some of the technologies that have been discussed today 
like biomass firing and other technologies that are out there.
    But to qualify for deployment incentives, if what we are 
trying to do is improve our, if what we are trying to do is 
improve our energy security, what is wrong with the standard 
that says as long as you are not going backwards, you qualify.

                       CTL Commercial Application

    Mr. Matheson. Let me also ask you a question, we have heard 
a lot in the context of coal-to-liquids about using biomass in 
connection with the coal for making liquid transportation 
fuels. Where is this technology in terms of its opportunity for 
commercial application now?
    Mr. Ward. And that is really an important question for this 
committee where you are looking at where research dollars 
should be spent. Coal-to-liquids with carbon capture and 
storage for enhanced oil recovery is something we can do today. 
There is commercially-available technologies, there are 
commercially-financeable technologies if we can deal with oil 
price risks.
    The biomass coal gasification, biomass co-firing, that is 
earlier in the scale. That is back where we need to do 
demonstration projects. There is probably some more basic 
research that needs to be done. Those are areas where we should 
be spending research dollars, not deployment dollars in order 
to develop that technology so that it will be useful in making 
future environmental improvements down the road.
    Mr. Matheson. And what are the environmental benefits of 
that technology combining the two?
    Mr. Ward. Well, when you combine the two, when you do 
carbon capture and storage and utilize biomass strategies, you 
can now go from a fuel that is as good as or a little better 
than the petroleum you are replacing to having a liquid fuel 
that is significantly better than the petroleum fuel that you 
are replacing.
    Mr. Matheson. And just maybe just to clarify what you said, 
because the Science Committee has jurisdiction over research 
funding. You are suggesting that for this committee that is an 
appropriate thing to take a look at?
    Mr. Ward. Exactly. And my testimony outlined three areas 
that I think are most appropriate for research dollars in this 
area, biomass being one of them, doing more complete work on 
setting standards for life cycle assessments for comparing 
these technologies to other fossil fuels is a second one, and 
then continuing to broaden the options and knowledge of carbon 
sequestration activities outside of enhanced oil recovery is 
the third.
    Mr. Matheson. Okay. I appreciate that. And I am sorry I was 
not here at the start of the hearing, and I wanted to welcome 
Mr. Ward, who is from Utah. I would have introduced you if I 
was here at the start of the hearing, but I didn't make it in 
time.
    Mr. Ward. That is okay. You would have said something 
disreputable.

                    Carbon Capture and Sequestration

    Mr. Matheson. One, just one last question I will throw out 
to any witness on the Committee in terms of the carbon capture 
and storage issue. It seems to me that these are, you know, CTL 
and CCS are both sort of in play right now. Can anyone talk 
about--give the Science Committee direction on the difference 
between the different available forms of carbon capture and 
sequestration and the types of research that this committee 
ought to encourage to help enhance policy support for different 
types of carbon capture sequestration?
    That is for anybody who wants to answer that.
    Dr. Bartis. Carbon capture and sequestration is one of the 
great challenges of the next few decades in my view, and there 
are a variety of approaches to take, but the most important 
approach in terms of how much can be captured is geologic 
sequestration. Enhanced oil recovery is significant, and it is 
good for the first few CTL plants. It is important that they 
probably do something like that, but if we want to go beyond 
that, we are going to have to do something much more 
significant. But right now the federal budget on carbon capture 
and sequestration is about $80 million a year, and that is just 
way too low for the challenge that is ahead.
    And the critical steps here are to have very large scale 
demonstrations, and what is important if you have a large scale 
demonstration is that you don't just focus on the engineering. 
There is a tremendous amount of basic science, geological 
sciences, geochemistry, geophysics, that has to accompany any 
of these large scale demonstrations. Otherwise we really won't 
understand what we are doing.
    And we have good scientists who are working on this, and 
this is a real big challenge, not just for coal-to-liquids, for 
everything.
    Mr. Matheson. For everything. Yeah.
    Dr. Romm. If I could just add, the Science Committee has 
to, I would, if it wants to support carbon capture and storage, 
should develop an accepted scientific process for identifying 
and certifying geologic repositories. I mean, I would point out 
we have spent how long trying to certify one repository for 
nuclear waste. We are talking about dozens of repositories for 
carbon dioxide, and we don't have any institutionalized process 
for how you identify and certify that some repository is going 
to be safe and permanent.
    Mr. Matheson. Dr. Freerks.
    Dr. Freerks. I do believe that the geo sequestration 
partnership is doing exactly that. They are looking at sites 
throughout the U.S. I believe there are seven sites that have 
been chosen. They are going to sequester millions of tons of 
CO2 and prove the capture nature of that geo 
sequestration and verify all the issues that go along with 
that, including any leakage and migration.
    And there are multiple places where this has already been 
demonstrated. In Norway there are two major sites that have 
already been using saline aquifers, and there is Devonian shale 
in other areas that can store massive amounts of CO2 
by the terms in which we are making CO2 right now. 
We can store CO2 for several hundred years, if not, 
I think 600 years has been proposed by Dr. Scott Clara of the 
NETL in their study of geo sequestration.
    So there is a lot of data supporting the sequestration of 
CO2 for the long-term and making it a viable 
technology for all of the ways that we produce energy through 
combustion and CO2, and then now it really comes 
down to how do we capture that CO2 and put it into 
the ground. Well, coal-to-liquids offers the best opportunity 
for doing that because we have to capture the CO2 as 
part of the process. So there is no inherent additional costs 
for scrubbing the CO2 out of our concentrated 
streams.
    Where there would be from coal-fired power plants or from 
oil refineries or even from fermentation into ethanol.
    Mr. Matheson. Well, Mr. Chairman, I see my time has 
expired, but I do want to thank the panel, and I would suggest 
as a Science Committee issue, in terms of figuring out what we 
can do to encourage understanding of carbon capture 
sequestration, if any of the witnesses want to provide 
additional testimony that gives direction for us or any ideas, 
I think that is an issue that this committee ought to take a 
look at.
    And with that I yield back.
    Chairman Lampson. Thank you very much. We have passed the 
Udall legislation that has to do with carbon sequestration, and 
obviously there is more yet that we have to do.
    I have been looking for a way to get Mr. Hall indebted to 
me. I think I may have just found it. I am going to yield time 
to Mr. Hall for a question.
    Mr. Hall. Mr. Chairman, I will ask a question of you. Are 
you going to give us some time to send letters----
    Chairman Lampson. You bet.
    Mr. Hall.--and inquiries to these gentlemen?
    Chairman Lampson. You bet we are.
    Mr. Hall. As you may remember, I offered an amendment to 
the biofuels bill establishing an R&D program, looking into a 
practice. It was unfortunately voted down during markup, but if 
you will remember, I had a little better luck on offering a 
motion to instruct conferees, asking the managers on the part 
of the House that the conference on H.R. 2272 to be instructed, 
if you remember that. Insist on language prioritizing the early 
career grants to science and engineering researchers for the 
expansion of domestic energy production and use through coal-
to-liquids. And this passed by a vote of 258 to 167, and most 
of you guys over there voted for it.
    I am going to write to each of these men and ask them if 
they favor providing grants to our young scientists and 
engineers to focus on R&D and these questions and whether or 
not that is an appropriate or inappropriate expenditure by the 
Federal Government and recommendation by this group.
    And I thank you for your answers, and I thank you, Mr. 
Chairman. I do owe you.
    Chairman Lampson. Thank you, Mr. Hall. I think this has 
been a very informative hearing, and we have, maybe it has 
raised more questions for some of us than we had when we first 
came in, and obviously we do want the record to remain open for 
additional statements from Members and for answers to any 
follow-up questions that the Committee may ask of the 
witnesses. I know that I have got some that I will, indeed, be 
forwarding out to you.
    So as we bring this hearing to a close I want to thank the 
witnesses for testifying before the Committee today. You are 
excused, and this committee is now adjourned.
    [Whereupon, at 12:00 p.m., the Subcommittee was adjourned.]

                               Appendix:

                              ----------                              


                   Answers to Post-Hearing Questions
Responses by Richard D. Boardman, Senior Consulting Research and 
        Development Lead, Idaho National Laboratory

Questions submitted by Representative Jerry McNerney

Q1.  Expanded use of coal-to-liquids technology could increase the high 
burden on available water supplies, particularly in the West. You 
discussed possible technical solutions that would dramatically reduce 
the amount of water used in the F-T process.

Q1a.  Please explain the status of these techniques, how difficult they 
would be to implement on a large scale, and how costly their 
implementation might be.

A1a. In my testimony, I stated that the amount of water required for a 
coal-to-liquids plant could be as high as 8-10 barrels per barrel of 
diesel fuel produced for an INL case study. This would be the case when 
no effort is made to treat and recycle the water that is discharged at 
several locations throughout the plant. The figure below gives a 
conceptual view of the water input and effluent streams for a notional 
coal-to-liquid plant. The gasifier is feed coal and steam, at a ratio 
of about one pound of steam per pound of dried coal (at 10 percent 
moisture). This translates to roughly 2.5 barrels of water per barrel 
of F-T product. More water (about one barrel per barrel of liquid 
product) is injected into the hot syngas to quench the hot syngas in 
order to remove particulate and soluble pollutants. Additional water is 
required to produce hydrogen in the CO shift reactor. The typical 
amount required for the shift reaction is approximately 0.5 barrel of 
water per barrel of product. Next, a large amount of cooling water must 
be used to cool the gasifier vessel and the F-T reactors and product 
upgrade refinery, which ultimately results in low-pressure steam which 
when vented to the atmosphere can be as much as an additional 4-6 
barrels of cooling water per barrel of product. In sum, the water input 
is about 8 to 10 barrels (or 2.5 + 1 + 0.5 + 4-6 barrels of water).
    In order to reduce the water consumption, the moisture that is 
recovered from the coal drying process can be used to make up the steam 
that is co-injected with the coal. This amounts to a net gain of one-
quarter (1/4) to one (1) barrels of water per barrel of product that 
can be offset for an eastern coal or western lignite, respectively. 
Next, water from the air separation unit (ASU) can be obtained, in the 
amount of about 0.25 barrels of water per barrel of product, depending 
on the relative humidity which obviously would be less for plant in the 
Western Mountain States. Quench system water and RectisolTM blowdown 
can be treated and used in the plant, netting approximately one (1) 
barrel more of water per barrel of product. The F-T process also 
produces about one (1) barrel of water per barrel of F-T product. This 
by-product water can be treated to remove water-soluble light organics 
for use throughout the plant. Finally, the cooling tower condensate can 
be treated and recycled, thus reducing cooling water make up by 67 
percent. This would reduce water use by an additional 2.5-4 barrels of 
water per barrel of F-T fuels product. All of the above process steps 
should be considered standard practice, and together amount to about 
10-15 percent increase in total capital cost and 10 percent in 
operating costs of the plant. Collectively, these practices would lower 
the water demand to around 3-5 barrels of water per barrel of product.
    Finally, I referred to implementing commercially available, but 
expensive air-cooler heat exchangers to replace the steam cooling 
tower. An expensive closed-loop organic refrigerant cycle could also be 
deployed to cool the low-grade, unusable steam. This option would 
however be expensive, but could be offset by revenue from surplus power 
that can be produced by expanding the refrigerant. Both of these 
options would increase the capital costs by approximately five percent, 
but would reduce the water demand to 1.5-3 barrels of water per barrel 
of product.




Q1b.  What are the realistic prospects for substantially reducing the 
amount of water used in coal-to-liquid production?

A1b. As can be seen by my analysis, proper consideration for using the 
water discharges from coal drying, the quench system, F-T by-product 
water, and cooling tower operations can significantly cut the water 
demand, at a cost of around 10-15 percent of the total capital cost of 
the plant, and an operating cost increase of only 10 percent. For an 
additional capital cost increase of around five percent, the 
theoretical water consumption can be reduced to as little as one (1) to 
two (2) barrels of water per barrel of product. Currently, some 
projects are claiming they have reduced the water demand to as low as 
one-half (1/2) barrels of water per barrel of product for a plant using 
high moisture lignite or sub-bituminous coal, and by implementing all 
practical water reclamation technology.
    Based on my study of refinery plants and coal-fired power plants 
that already use air-cooler heat exchangers in arid climates, my 
opinion remains consistent with my testimony; that is, the practical 
limit of water demand--accounting for 1) potable water use, 2) yard 
water uses such as dust control, 3) normal steam cleaning of equipment, 
4) steam leaks, 5) water discharges limits to existing streams or deep-
well injection, 6) practical limits to air-cooler heat exchangers, and 
6) cost-risk constraints associated with closed-loop refrigeration--is 
around three (3) barrels of water to barrel of product.

Q1c.  Is it possible to reduce the amount of water required to a low 
enough level, relative to the price of gasoline, that it is 
economically viable to produce coal-based fuels on a larger scale?

A1c. Only a subjective opinion can be given to this question, based on 
semi-technical bias. When the cost of petroleum crude remains above 
$75-80 per barrel, then my economical assessment indicates that F-T 
fuels will be competitive with corresponding gasoline costs of around 
$2.75 per gallon, and diesel fuel cost upwards of $3.10 per gallon, as 
at the end of the summer season, 2007. This assessment includes both 
capital and operating costs required to treat and recycle recovered and 
produced water in the plant to achieve a water consumption rate of 3-5 
barrels per barrel of fuel product.
    With respect to water demands in the Western U.S., in my testimony, 
I recommended that water currently being co-produced with conventional 
crude oil or coal-bed methane production be used to support co-located 
coal-to-liquids projects. There is sufficient water to supply several 
large plants for the life span of these plants. It may be necessary to 
impound, or store this water at some additional cost; however, these 
costs are not substantial, and would not raise the operating cost more 
than approximately five percent. With this nominal increase, F-T diesel 
fuel would still be competitive with current market prices.
    Although the West is water-constrained, the amount of water 
required for a large complex of coal-to-liquid plants producing upwards 
of 300,000 barrels of F-T fuels per day, at 3:1 barrels of water per 
barrel of F-T fuels, would require less than one percent of the upper 
Colorado River, Columbia River, upper Platt River, and upper Missouri 
River stream flows.

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