Coal:

Duke CEO Shaw, Peabody CEO Engelhardt discuss emissions technology deployment

Coal is back as the fuel of choice for electricity generation, but can it become a clean energy source? Will utilities deploy ultra-low emissions technology for the 100+ plants slated for construction? Are IGCC and other cutting-edge emission-reduction technologies ready for prime time? Peabody Enegy CEO Irl Engelhardt and Duke Power CEO Ruth Shaw join OnPoint to discuss these issues as the Senate Energy Committee launches its seminar on coal and coal emissions technology.

Transcript

Brian Stempeck: Hello and welcome to OnPoint. I'm Brian Stempeck. With us today is Irl Engelhardt, CEO of Peabody Energy, and also Ruth Shaw, CEO of Duke Power Company. Irl, Ruth, thanks a lot for joining us.

Irl Engelhardt: Thank you for having us Brian.

Brian Stempeck: Ruth, I'm going to start with you. Right now the Clear Skies markup is going on yesterday. Right now the big issue going on is climate change and what to do about CO2 regulations in the bill. I kind of want to start off with a general question for you and your company. Do you feel that global warming is a problem that needs to be dealt with?

Ruth Shaw: Well obviously the issue of climate change and global warming is one that's gotten a lot of national and international debate. Our industry, which is a company that uses a lot of coal and a lot of nuclear power, believes society is going to come to wrestle with this issue and we want to be part of that. We're committed to reducing emissions. We're a coal technology, as well as to nuclear.

Brian Stempeck: Several companies, like AEP and Cinergy, they have set actual goals for reducing their emissions by 5 percent, certain goals, you know, by 2010. Has your company than anything like that and do you plan to do anything like that?

Ruth Shaw: Well, we have established a number of goals for emission reductions, have met those. In fact, North Carolina has through its 2002 Clean Smokestacks Act, rules that take our emissions for NOX and SOX far below current federal standards, and we spent about $2 billion to meet those emission reductions.

Brian Stempeck: Irl how about you, I know Peabody Energy, most of the focus is on actual coal mining and not as much on the electricity generation sector, but what is your take on whether global warming is actually a problem that we need to deal with and whether Congress is going to do something about that?

Irl Engelhardt: Well, first of all to put it in perspective, our company fuels in excess of 10 percent of the U.S. electricity.

Brian Stempeck: Right.

Irl Engelhardt: And over 2.5 percent of the world's electricity. We are developing several large coal fire generating plants around the nation and are proceeding well along in that development process. Related to global warming, we have followed, to date, the voluntary programs where we would proceed to reduce our emissions per unit of output. We have taken steps where we reforest lands and plant in excess of a million trees a year. We have taken steps where we capture methane in advance of our mining and all of those steps, plus the efficiency improvements that, through better productivity, have reduced the intensity of greenhouse gas emissions per unit of our product.

Brian Stempeck: So, how much would they actually decline? I know that's the key goal that people talk about, is greenhouse gas intensity, how much your emissions decline based on your output --

Irl Engelhardt: Well, compared to 1990, again, on a per unit of output, it's declined about 30 to 35 percent.

Brian Stempeck: So you're down pretty substantially?

Irl Engelhardt: We are, yes.

Brian Stempeck: How do you see things moving forward on Clear Skies in Congress and on Capitol Hill? There's clear movement from a lot of the Democrats, they want to see carbon regulated. They've said that the Clear Skies bill does not do that and there's been some talk, Senator Voinovich, earlier this week, put out a proposal to maybe do a greenhouse gas intensity goal like you're talking about, maybe reduce emissions about 4 percent. Would you support an approach like that?

Irl Engelhardt: Well, I believe our country needs a Clear Skies type bill. We have gone far too long without debating the issues of air quality coming from the power plants that we produce or that we utilize and the group that Ruth and I are co-chairs of support continuous improvements in emissions from coal generating plants. Related to the Clear Skies bill, I would only say that we hope that for the good of the country that somehow the Senate is able to break its deadlock and move forward, because we will achieve approximately 70 percent reduction in emissions.

Brian Stempeck: But clearly, the breaking issue right now is carbon dioxide. Can you specifically lay out what needs to be done on that? Where do you think, is there middle ground on the issue and is there any proposal out there, like Senator Voinovich's or perhaps Senator Hagel's bill, that would encourage climate change technology. Do you support either of those approaches as some middle ground on Clear Skies?

Irl Engelhardt: We believe both of the approaches have elements that are sound and yet each seems to have a focus that, or a step or two that is objectionable. What we think needs to happen is that the committee focus carefully on the issue and as they make their decisions on climate change they carefully balance the needs of our economy, our citizens for maintaining and improving their lifestyle and national security at the same time that they're improving the environment.

Ruth Shaw: And Brian, I'd simply add that this is an issue that cuts across many sectors. Addressing it only through the electric utility sector is an imperfect solution at best. So as this issue is engaged it does need to be taken seriously, thoughtfully and looked at across the whole, all of the sectors that contribute to CO2, not just the electric sector.

Brian Stempeck: One thing we always hear from the coal industry is support of a lot of the climate technology, new clean coal developments, IGCC and things like that. When you're always talking about supporting those things, why wouldn't you support a bill like Senator Hagel's bill, which includes tax incentives for new technology? Irl seems to be kind of, says there's some objectionable parts of that bill. Do you feel the same way and why wouldn't the industry support that sort of a proposal?

Ruth Shaw: Well, we are very much in support of incentives for new technologies and we do believe that the realization of the goal that we've outlined for ultra-low emissions, zero emissions coal, by 2025 is very dependent on funding and partnerships between the public and private sector for those technologies. I'm not familiar with all the details of Senator Hagel's bill so I can't speak directly to what's good and bad about it, but we certainly support that approach for our country and for other countries, where lots of investment is going to be made in coal. We need to have technologies that will help here and in other developing countries.

Brian Stempeck: Let's talk more about that goal you just mentioned. I'm not that familiar with it, but by 2025 you want to have some zero emissions plants, is that the general idea?

Ruth Shaw: Basically they're ultra-low emissions and what we've done is outlined some goals for the industry itself that we would define as ultra-low emissions. If you look at the facts, plants that were built in the 1970s, which really represent most of the nuclear coal plants would be considered ultra-low emissions by, in terms of their emissions today. We're looking at things that would be, it would've gone to 99 percent or greater removal of SOX and NOX emissions, 95 percent and greater of mercury emissions and the standards are outlined in the paper and have looked hard, not have looked hard, but have identified technologies to capture and sequester CO2.

Brian Stempeck: When you're talking about 20 years out from now a lot of people would say this technology is available today. You can do IGCC and some carbon capture, air suppress penalty is about 20 to 30 percent more expensive, whatever you want to say. But we're at a point right now where about a hundred new coal plants are going to be built in the next five, 10, 15 years. Don't those plants need to be IGCC and have the potential for carbon capture in order to really deal with the CO2s? Isn't 2025 way too far out to deal with that?

Ruth Shaw: Well, we are looking at a lofty goal by 2025, but we are completely committed as an industry and again, across-the-board with reducing those emissions steadily with that continuous improvement, whether it's IGCC, pulverized coal technologies that are merging. We don't think there's any single technology that's going to be the answer, but that we need to be developing a suite of technologies that will lead us to this ultra-low emissions, zero emissions goal, and protect our national energy security by continuing to be able to use coal in this country.

Brian Stempeck: Well, of the hundred or so plants that have been proposed, new coal plants, only a real handful of them are IGCC which is kind of the ultra clean technology that we're talking about here. What can Congress and what can the White House do to get more of these plants built?

Irl Engelhardt: Well, let me clarify something about IGCC. There are over a thousand coal fuel generating plants under various stages of development around the world and only a handful of those are IGCC and to say that it's proven technology and all we have to do is spend more money. That is not a fact. Generally, around the world, the only IGCC projects that are moving forward have significant subsidies from the governments of the countries in which they are located or somehow there's another subsidy of those plants. So it is not technology that is ready to go. Second, we support its development. My company has been an investor along with Southern Company and other, and the Department of Energy in coal gasification test programs and test plants and they're quite substantial. The issues that still remain is taking these test projects and moving them to a large commercial scale and being able to really accomplish the emissions that are promised from IGCC, because the plants are not operating at those low levels right now. So that when Ruth says that we should have multiple technologies, well we think we should develop IGCC, but we have to realize that the fleet of plants that are out there right now are pulverized coal plants and continuing to develop technology to improve their performance is also important because we can retrofit that technology on the existing plants and reduce our emissions.

Brian Stempeck: But IGCC does seem to be kind of the hot topic with a lot of people, in terms of being perhaps the best solution, because it can kind of be a steppingstone to later on capturing that CO2 and doing sequestrations and the other far out things you're talking about. There's two plants going on right now in the United States that do IGCC. There's another three or four that are being talked about being built and I know Peabody had a plant in Kentucky that a lot of environmental groups were saying, their pushing state officials saying, why isn't this plant IGCC? This is the best technology we have. A lot of people say this isn't ready to go. This is almost off-the-shelf it's just higher costs. You don't agree with that? What are the problems with that?

Irl Engelhardt: No. Well the very simple problem is that it's never been developed on a large commercial scale and those opponents of the super clean pulverized coal plants try to put forward a technology that is unproven. Well, ultimately we have to deliver on the investment that we make and we have to be able to finance these projects. When a bank comes to a developer and says prove to us that, show us where this technology is operating and show us and demonstrate that it's proven, we can't do it with IGCC technology at this time. That's why we're encouraged when large companies are investing in the technology and are stimulating its development. We think that we need a number of plants to be built that are IGCC and that if all of the bugs are worked out in the technology and that we ultimately are able to deploy it, but it's not ready at the current time.

Brian Stempeck: Ruth, what's your take? What needs to happen next to get this technology ready or to, I know there's some talk of financial incentives and government funding from DOE and other sources that can help out with building these plants. Is that the best answer or is it just not ready yet?

Ruth Shaw: Well, there absolutely has to be incentive and financial support from the Department of Energy, from the government and the private sector to get this developed and commercially available. I think you've seen good commitment from the private sector to make those investments, if we've got some public support as well and some regulatory certainty. I mean there's a real holdup in constructing anything until we've got a clearer line of sight to what the emissions requirements are going to be, which is why we need a bill like Clear Skies.

Brian Stempeck: Let's talk about FutureGen for a second. This is a proposed zero emissions plant from the Department of Energy that also has a lot of industry participation, but as of yet, it's still kind of slow going right now. It's only being, about $18 million a year is being spent on the project and we've yet to see an industry commitment saying hey, we're gonna step up and fund this project with about $250 million. Is that gonna happen? When is that gonna happen?

Ruth Shaw: Well, actually Irl's probably the right guy for that question --

Irl Engelhardt: Well our company participates in the consortium that is trying to develop FutureGen and it's somewhat frustrating for us because, for the whole consortium, because the funding hasn't come forward from the government to move the project forward. We think it's a great project. We think it'll be a milestone in developing ultra-low emission technology. That just simply doing the research on carbon capture and sequestration, as a part of FutureGen, will be a wonderful event. Being able to convert syn gas, that's created from coal, to hydrogen and having that source of fuel available to help our country avoid the problems with imported fuels, that will be a wonderful development. So we're pushing very hard to have the project to forward, but thus far, budgetary problems have delayed it.

Brian Stempeck: Basically what happened was last year the White House asked for $240 million for FutureGen. Congress came back and said we don't want to give that money for these next couple years. We're gonna give you about $18 million for this upcoming year.

Irl Engelhardt: Right.

Brian Stempeck: Does that worry you? Are you working with appropriators to try to get more money for this project? Again, when is the industry going to say we're on board with this, here's our share of the funding?

Irl Engelhardt: Well, as with Clear Skies, as with FutureGen and many other public policies, if our government, our Congress could put its partisan politics inside, its regional differences and really focus on sound public policy this country would be far better off. In the area of FutureGen that's a prime example, and I believe Clear Skies is a prime example. To have been deadlocked on Clear Skies for three years when the electricity, rail, coal industries, who are involved with the process, all support it, are all prepared to spend tens of billions of dollars is not good public policy. We're harming the environment, and we're also failing to make progress on better emissions for our country.

Brian Stempeck: But, is industry ready to pay, is the consortium ready to say, here's our $250 million for FutureGen? Are you at that point yet?

Irl Engelhardt: Certainly the consortium exists, certainly we're beginning to get more activity from the government, depending upon the terms and conditions that the government requests, I think we're ready as an industry.

Ruth Shaw: It really is a partnership Brian and I mentioned earlier, my company, simply on putting environmental upfits to reduce emissions from our existing coal plants, will invest about $2 billion in those plants. I don't think there is any evidence of a lack of willingness of the industry to invest in new technologies and in emission reducing technologies. In our case we had a collaboration with environmentalists, with regulators, with legislators that gave us confidence about making that investment, about getting a return on it, but through our customers they were willing to pay to get the environmental benefits. It is a business, you make trade-offs and you do the things that are right for the environment and the economy and we saw that happen with Clean Smokestacks in North Carolina.

Brian Stempeck: All right. We're out of time. We are going to have to let that the last word for today. I'd like to thank both of our guests today that was Ruth Shaw, CEO of Duke Power Company, and also Irl Engelhardt, CEO of Peabody Energy. I'm Brian Stempeck. This is OnPoint. Thanks for watching.

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