CLIMATE:

Coal industry sees life or death in Senate debate

When people in the coal business talk about "the valley of death," they are referring to a grim place not located near any mine. It is an economic chasm that the industry fears awaits it if the Senate approves climate legislation similar to what passed the House.

Although the House bill includes some help for coal, it also creates incentives for utilities to move away from polluting fuels. Industry advocates and independent analysts say that leaves coal with few options for a sustainable future.

"Unless they come up with a breakthrough technology to capture carbon and store it, coal is dying," said Kenneth Green, resident scholar at American Enterprise Institute, a conservative think tank. "If this [bill] does what they want it to do, I would say coal is on its way out."

That is what coal hopes it can prevent with its latest lobbying push.

Passage of the House climate and energy bill kicked off renewed lobbying efforts, with industry advocates urging senators to produce legislation that would slow down the pace of efforts to cap carbon emissions. Environmentalists are pushing back, seeking to prevent a weakening of proposals in the House bill.

The House bill, which passed last month in a 219-212 vote, would limit carbon emissions and require businesses to buy permits for the greenhouse gases they emit. In the early years, the government would give away 85 percent of those permits and auction off the remaining 15 percent.

Of the free permits, 35 percent would go to the electric utility industry in 2012 and 2013. The sector's free permit portion shrinks every few years after 2013. The allowances phase out completely between 2026 and 2030.

That sounds like some good news for coal, which is used for generating about 50 percent of the country's electricity. In fact, environmentalists consider the bill crafted by Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.) highly favorable to coal.

"They're probably popping champagne corks and are partying all summer long because of what they got in the Waxman-Markey bill," said Nick Berning with Friends of the Earth, an environmental group. "The idea that coal lobbyists are out there complaining that they need more is just appalling, because they already got so much."

But both coal-industry and independent experts foresee a situation where utilities start to abandon coal.

Utilities will want to prepare for the shrinking number of free permits in the future, AEI's Green said. By switching from coal to natural gas, utilities could cut their carbon emissions almost in half, he said, then sell any leftover free permits to other businesses. Coal produces nearly twice as much greenhouse gas pollution as natural gas, per unit of energy made.

And if a carbon cap becomes law, Green said, investors are not going to put money into coal-fired power plants or coal mines.

"Expansion of coal is probably going to cease," Green said. "Nobody is going to want to build a coal power plant." The only growth, he said, could come in coal sales to China or other countries.

The industry's hope is that it can find a commercially viable way to capture carbon emissions and sequester them underground or underwater. But putting the pieces of that technology together and getting them running before the carbon cap tightens could be difficult.

"You're talking about a minimum of 10 years" to show the feasibility of a carbon capture and sequestration plant, said Joel Darmstadter, senior fellow with Resources for the Future, a nonpartisan research group.

Such a time frame is "unbelievably fast when you don't even have a pilot project," Green said. And building pipelines needed to move the captured carbon, he said, is "virtually impossible" within that decade.

It is through that narrow window that the industry sees a potential valley of death.

If utilities switch away from coal, coal-fired plants won't be built, coal production will stop, coal miners will lose their jobs and the ancillary businesses around coal will shut down, said Luke Popovich, spokesman for the National Mining Association.

Then, even if carbon capture and sequestration comes online, Popovich said, it will be too late.

"You wouldn't have the expertise," Popovich said. "You wouldn't have the infrastructure. You wouldn't have the labor force you would need to sustain the industry."

Changes sought

Lobbyists are asking lawmakers to slow down the pace of any cap-and-trade system, using lower carbon caps that kick in more slowly. The House bill would reduce greenhouse gas emissions from 2005 levels by 17 percent by 2020, 42 percent by 2030, and 83 percent by 2050.

Coal advocates are not revealing what numbers they are willing to accept, only that the ones in the House bill are unrealistic for the industry.

"The most important reason to adjust the timeline is to give technology a chance to catch up," said Scott Segal, co-head of the federal government relations and strategic communications practices at Bracewell & Giuliani LLP. The firm represents coal, utility and oil interests. Targets for carbon reductions, Segal said, "have to be respectful of what technology can accomplish."

Lobbyists are telling lawmakers that eliminating coal and switching to natural gas is not a solution without consequences. Natural gas historically has been more expensive, they said. And higher demand for natural gas would drive up the price.

In addition, coal is asking senators to add language specifying the highest price a pollution permit in the cap-and-trade system could reach. They tried unsuccessfully to have that language added in the House. Under the Waxman-Markey bill, the free market will determine the price for the permits that are auctioned.

Environmentalists consider all of coal's arguments flawed.

"Everything that I know about carbon capture and sequestration indicates that it's going to be extraordinarily expensive, if it can ever be done," said Berning with Friends of the Earth. "Certainly the costs to society of burning the coal are not cheap in any way."

Friends of the Earth and other environmental groups are telling senators and their aides to resist coal's effort to relax the cap.

"The gains in the Waxman-Markey bill are so grossly inadequate, rather than weakening the timetable, we need to have a much stronger timetable," Berning said. While it is unrealistic to stop coal usage immediately, he said, "there's no question we have the technology to move away from coal."

With the right investment incentives, alternative energy sources eventually can fill in the gap, Berning said. And energy efficiency alone can make a big cut in greenhouse gas emissions.

But it could be tough to win that argument in the Senate, he said, where coal potentially has a strong influence.

"Ultimately, the way Congress operates is, unless the public gets really interested in an issue, special interests get what they want," Berning said.

Getting to 60 votes

While some in the coal business would prefer no regulations, they realize that new rules might be inevitable. Trying to stall action on a bill could mean even tougher policy changes later on, they said. And there is concern that if Congress does not act, U.S. EPA would enact more restrictive regulations.

There is also a desire to know what the rules will be so businesses can plan, said Dave Scanzoni, spokesman for Duke Energy Corp., a utility that provides power in North Carolina, South Carolina, Kentucky, Ohio and Indiana. Averaging for those five states, Duke uses coal for 71 percent of its power generation.

"Our company early on decided to be actively involved in shaping the legislation," Scanzoni said. Duke supports legislation, although it is looking for changes in the Senate bill, including greater consideration of nuclear power as a way to meet energy needs without emitting carbon.

Coal companies and their lobbyists believe they have a good chance of persuading senators to produce a bill that would be easier for the industry to stomach. Democratic leaders will need to produce a bill in the Senate that can generate support from 60 senators to pass a preliminary procedural vote.

Even though there are now 58 Democrats and two independents who caucus with Democrats, that is an illusory total. Sens. Robert Byrd (D-W.Va.) and Edward Kennedy (D-Mass.) have been absent due to illnesses. There is also a big bloc of moderate Democrats and those with coal interests or coal-fired utilities in their states.

Lobbyists are courting that bloc of senators.

"What almost collapsed the House bill were substantial regional differences that came into focus the last week or two of lobbying," said Segal with Bracewell & Giuliani. "They're not only present but greater in the Senate."

Senators from the Midwest, Southwest and mountain West have an interest in working with coal and utility interests, several lobbyists said.

As representatives from the National Mining Association visit lawmakers and their aides, they are carrying a map that shows what the trade group said will be the cost of the plan to each state. They have a new map that shows how much money will leave each state and go overseas to buy carbon offsets, projects that absorb carbon in the atmosphere. The Waxman-Markey bill allows for companies to buy offsets instead of paying for carbon emissions permits.

"What Congress will ultimately do will be a function of what they know about the consequences," said Popovich with the National Mining Association.

Lobbyists are talking with the "gang of 16" senators. They include 10 Democrats who last fall signed a letter to Senate Majority Leader Harry Reid (D-Nev.) laying out concerns about a cap-and-trade plan. The letter, among its points, said that burden must be shared equally across states.

Signing the letter were Sens. Debbie Stabenow and Carl Levin of Michigan, John Rockefeller of West Virginia, Blanche Lincoln and Mark Pryor of Arkansas, Jim Webb of Virginia, Evan Bayh of Indiana, Claire McCaskill of Missouri, Sherrod Brown of Ohio and Ben Nelson of Nebraska.

In the weeks after the letter was sent, Democrats Jeff Bingaman of New Mexico, Byrd of West Virginia, Kent Conrad and Byron Dorgan of North Dakota, and Tim Johnson of South Dakota joined meetings on global warming policy. Interior Secretary Ken Salazar, who was a senator from Colorado until his appointment, was the 16th person in the group.

Lobbyists said there are a few other moderates they are targeting, including Democrat Mary Landrieu of Louisiana and Sen. Arlen Specter of Pennsylvania, who just switched from Republican to Democrat.

Most Republicans are likely to reject a bill that resembles the House legislation, said lobbyists who have been talking to their aides.

"I don't think putting clamps on our economy when you know the Chinese and the Indians are not going to do it is a good idea," Senate Minority Leader Mitch McConnell (R-Ky.) said on "FOX News Sunday" on June 28. "Why not develop technology to burn coal cleanly and build new nuclear power plants? The French, for example, produce 85 percent of their power from nuclear plants. They don't have a CO2 emission problem."

Coal lobbyists will only need to persuade a handful of moderates to keep the Senate from reaching the 60 votes needed.

"It lets them concentrate their efforts," AEI's Green said.

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