Energy Policy:

Leucadia Energy's Johnston discusses policy shifts on clean coal

As U.S. EPA moves forward with its air regulations, what is the future of clean coal in the United States? During today's OnPoint, Hunter Johnston, a partner in the energy policy group at Steptoe & Johnson and senior counsel to Leucadia Energy, discusses the Obama administration's action on clean coal and the impact of competing energy sources on coal's long-term viability.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Hunter Johnston, a partner in the energy policy group at Steptoe and Johnson and senior counsel to Leucadia Energy, which is developing four clean fuels projects. Hunter, thanks for coming on the show.

Hunter Johnston: Thank you, Monica.

Monica Trauzzi: Hunter, you represent several gasification facilities, including an Indiana facility that's up for a permit with EPA. How would you qualify the Obama administration's view on the long-term viability of clean coal?

Hunter Johnston: Well, I think the Obama administration has shown leadership in investing in clean coal. Of course, the Recovery Act invests multi-billions of dollars in carbon capture and storage, some of that has to do with small projects. Others have to do with large projects that will store millions of tons of CO2 for use in, for beneficial use in enhanced oil recovery.

Monica Trauzzi: So, how do all of these projects and these investments sort of jive with what we're seeing coming out of EPA in terms of air regulations?

Hunter Johnston: Well, it's a complicated area. CO2, up to this year, had not been regulated. Of course, the Obama administration came out first with the Title V Tailoring Rule new source for major stationary sources. And then, of course, under review right now is the proposed power plant regulations with respect to CO2. The availability of carbon capture is part of the main justification for these regulations. And for coal plants to meet natural gas emission standards, the same emission characteristics of a combined-cycle power plant, there has to be carbon capture and storage. So our projects will help prove the ground for use of CO2, particularly with respect to enhanced oil recovery.

Monica Trauzzi: But how far away are we from a viable technology that could keep coal relevant?

Hunter Johnston: Well, let's make a distinction between power plants and major sources, particularly the technology of gasification. Gasification is meant really for, it's a clean coal technology. Gasification does not burn coal as a boiler, as a power plant would in a boiler. Rather in gasification you use a fuel like coal or Petco and combine it with water under heat and pressure and you get clean chemicals from that process. You also get a large amount of CO2. So, through the classification process you can capture large amounts of CO2, CO2 that can directly be used in enhanced oil recovery. For instance, in the Indiana project which you refer to is undergoing permitting by EPA right now, it will produce 4 million tons of CO2 a year. That will result in 10 to 20 million barrels of new oil production every year.

Monica Trauzzi: And we're talking about a pipeline that will be built or is proposed to be built down to Texas?

Hunter Johnston: That is correct and that's another essential part of the Indiana project, is connecting the oilfields of the Gulf South to the coal region of the Illinois Basin, particularly in Indiana. That gives a viable path, the construction of this pipeline, to projects in the Midwest that otherwise would have to use geologic sequestration nearby. Geologic sequestration, of course, has high cost associated with it because of the compression and difficulty of injecting formations in the Illinois Basin that's not associated with oil production.

Monica Trauzzi: So, where do things stand in terms of the EPA permitting process? When are you expecting EPA to move forward with a decision?

Hunter Johnston: Well, the Indiana project received a big step forward from the Indiana Department of Environmental Management, which has delegated authority from EPA in this area. And they've composed a draft permit, a draft permit which will permit the cleanest coal project ever permitted by the EPA. And that process should be finished review at EPA in July.

Monica Trauzzi: With natural gas as cheap as it is, what incentive does industry really have to continue to put all of this money behind clean coal technologies when there are other technologies that might be more viable and easier to access at this point?

Hunter Johnston: Sure, low gas prices challenge all energy sources, including by the way natural gas. It's very difficult for gas producers to make money at two dollars an MCF for natural gas. To make investment decisions and make energy policy based upon the latest price signal of natural gas, it would be a foolish way to make policy. We agree with President Obama's all-of-the-above strategy, because what it says is we need all of the above. We need renewables, we need nuclear, we need gas, but we also need clean coal and these are investments that take large amounts of capital investment. But certainly we shouldn't make a riverboat gamble by only investing in gas projects.

Monica Trauzzi: The Senate Energy and Natural Resources Committee has been discussing Chairman Bingaman's clean energy standard proposal. How do you see that legislation impacting coal technologies?

Hunter Johnston: Well, of course, we'll have to wait and see if the energy committee actually passes any legislation. Senator Bingaman, I understand, had a hearing, but is not seeking to move that legislation this year. So we'll just have to see what the details are. But presumably a clean energy standard would, in fact, benefit projects, for instance, coal projects that would capture their CO2.

Monica Trauzzi: All right, we'll end it there. Thank you for coming on the show.

Hunter Johnston: You're welcome.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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