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Headwaters' John Ward discusses new coal-to-liquids coalition, urges government incentives

As part of a new campaign to promote coal-to-liquids technology on Capitol Hill, the National Mining Association has created a new coalition to help spread the word about CTL. During today's episode of OnPoint, John Ward, vice president of marketing and government affairs for Headwaters Inc., discusses the goals of this new coalition. He also comments on Sen. Jeff Bingaman's (D-N.M.) recent remarks about coal-to-liquids' place in U.S. energy policy. Ward responds to environmental concerns surrounding coal-to-liquids technology and urges lawmakers to help create incentives for the CTL industry in order to stimulate growth.

Transcript

Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is John Ward, vice president of Marketing and Public Affairs at Headwaters Inc. John, thanks for coming on the show.

John Ward: Thanks for having me.

Monica Trauzzi: John, the Coal-to-Liquids Coalition, which is run through the National Mining Association, has just begun a new campaign on the Hill to sort of push coal-to-liquids technology. Explain what the campaign is and how your company is involved.

John Ward: Well, the momentum for coal-to-liquids technology has been growing steadily over the last year or so. And the coalition, effort that's kicking off this week, is just an effort to circle all the diverse groups that are interested in seeing this move forward. Our company is both a technology provider and a project developer in the coal-to-liquid space. But obviously you've got mining companies, you've got numerous associations of fuel consumers, you've got state and local authorities who are interested in seeing this kind of development in their states go forward, all of those are members of this coalition.

Monica Trauzzi: And specific names on members of Congress who are involved?

John Ward: There are a number of bills that have been introduced and more are expected to be soon. Some of the eminent leaders in it right now are Senators Bunning and Obama have a bill out. Representatives Boucher and Shimkus are doing a great deal, Chairman Rahall, a long list of members are getting involved. I'm not sure who all is going to be at the rollout today, but the support is bipartisan and spread across the country.

Monica Trauzzi: What I should company specifically doing to bring coal-to-liquids technology to the forefront?

John Ward: Well, our company acts as a technology provider in both of the main methods of doing coal to liquids, indirect, indirect coal with liquefaction. In that role we have licensed technology for plants that are being constructed overseas, primarily in China, but also projects moving forward in India and the Philippines. Here in the United States we're acting primarily as a project developer. We have a project that we're moving forward in North Dakota; also have recently announced a joint venture with CONSOL, a coal company with interests in both the East and West to look at other projects.

Monica Trauzzi: Senator Bingaman, the chair of the Senate Energy and Natural Resources Committee recently said that he wasn't confident that coal-to-liquids technology would hold a strong place in the U.S. energy policy. How significant are his comments to the future of legislation and a push for coal-to-liquids technology?

John Ward: Well, obviously Senator Bingaman, Chairman Bingaman, needs to have a huge say in how this process goes forward. But I will say that the support for coal-to-liquids developments has been very broad and very bipartisan. Coal is produced in nearly every region in this country, and many of those regions are interested in seeing the development of our own capabilities to do this. And I think voters in all regions in the country are interested in seeing greater energy security, relying on the things we have here at home as opposed to shipping billions and billions of dollars off to countries who don't necessarily like us and are dependent on that. I think as the debate on this moves forward people will see that this is a technology that can be deployed environmentally responsibly and do a great deal to increase our energy security, for example.

Monica Trauzzi: And that's one of the things he cited as an example of why he was concerned about coal-to-liquids, the environmental impacts of it. Environmentalists are concerned that coal-to-liquids plants could contribute to greenhouse gas emissions. So how do you respond to that?

John Ward: Well, every energy issue today is being viewed through the lens of carbon and carbon controls. The coal-to-liquids technologies, no matter which one you select, are inherently carbon capture ready. So as we move to an environment in which carbon capture and storage is an issue all of these projects are ready to do that. Our company, the projects that we're specifically looking at, involve carbon and capture storage from the very beginning. We see carbon dioxide as one of the product opportunities for the plants. At the bottom line is that this coal-to-liquids technologies, we can produce liquid fuels that work in today's fleet of automobiles and trucks and buses and planes. We can produce them in a way that's at least as clean as producing it from petroleum if we capture that carbon. And the fuels that we're actually producing are even cleaner than the fuels are being produced by petroleum.

Monica Trauzzi: But does that carbon capture and sequestration technology exists in the form that you need it?

John Ward: Oh, we believe it does. The largest coal gasification implant in the country that's operating right now is Dakota Gasification in North Dakota. They have been selling their carbon dioxide for enhanced oil recovery through a pipeline to the Canadian oil fields for 20 or 30 years now. In fact, before natural gas prices went up a few years ago I believe that plant was making more money selling the carbon dioxide for enhanced oil recovery than they were selling the natural gas product that they were making from the coal gasification. So, again, we don't view the carbon dioxide necessarily as being a pollutant that needs to be cleaned up. We view that as one of the mix of products that can come out of this technology.

Monica Trauzzi: You mentioned the legislation that's being circulated on the Hill for coal-to-liquids technology. As you said, there are a few pieces. Which would you support and what more do you think Congress should be doing?

John Ward: The Coal-to-Liquids Coalition has identified about six different things that can help incentivize this industry and get this industry moving along faster. Some of those have already been approved in EPAC, like loan guarantees and investment tax credits. Those kinds of things, if fully funded and made available to the coal-to-liquids industry, would help. Another thing that would be vitally important, frankly, is the extension of the excise tax credit that already exists. It was in SAFETEA-LU bill, extended that $0.51 a gallon credit that worked for the ethanol industry to coal-to-liquids. Unfortunately, it expires in 2009. So we need to get that extended into a manageable period of time. These plants will take five to seven years to build. We need to get that extended. And that, more than any other incentive, in my opinion, would have the effect of helping to stimulate the growth of this industry in the early stages.

Monica Trauzzi: This stuff is extremely expensive to build. Do you think it's cost prohibitive from the get go?

John Ward: It's not cost prohibitive at all. It kind of down to the question, you know, is the government needed to do this? We will have a coal-to-liquids industry in this country whether the government gets involved or not. As long as oil prices stay above $40 a barrel, and today they're north of 60, market forces will cause coal-to-liquids to come into being. The question is how fast? And do we have to wait for another natural disaster or terrorist attack or war or something to create a catalyst to get this moving? If there are no incentives from the government, it goes back to the issue of everybody wants to be the first person to build the fifth plant. If there are no incentives from the government you'll see a plant that's starting construction right now in Illinois come on line at 2000 barrels a day and then one of these 10,000 barrel a day plants will get financed. And every time this scales up some of the risk comes out of it and the industry will come. If the incentives come we can shorten that time period to where the larger plants are built and then the market will take care of itself.

Monica Trauzzi: Wall Street is concerned about funding CTL projects though. How do you convince them?

John Ward: Again, you convince them by building plants. Wall Street has two concerns. They're concerned about will the technology work here? Well, the South Africans get 30 percent of their liquid fuels from coal today, have been doing it for decades. The Chinese are way ahead of us in building coal-to-liquids plants. So we just need to get a few of them built here so Wall Street will be confident. The second thing they are worried about is oil price risk. Well, yeah, oil is at $60 a barrel today. But what will it be in eight or nine years when your plant gets up and running? An incentive like the excise tax credit that worked for the ethanol industry deals with both of those issues by providing you a buffer. It provides you a cushion to get these first few plants built.

Monica Trauzzi: So if you had to take a guess, how far away is implementation of coal-to-liquids technology on a grand scale?

John Ward: Again, it depends on what kind of incentives come into the market and how fast it comes. These are large plants. They are complex. They also create a huge amount of jobs and a huge amount of economic activity for the regions that get them. If we were to start when today, as many of them are, and get the funding in place to do the preliminary engineering and then move onto the financing, you're looking at five to seven years to get a plant up and running. So it's just a question of when do you start. Do we want to start today to build that capability for America's energy security or do we want to wait five more years until we have another crisis that forces us to start then and wait five to seven years after that?

Monica Trauzzi: Switching gears a bit, would our company support legislation that would cap emissions?

John Ward: You know, we're not taking a position on caps or cap and trade or carbon tax at this time. Again, I think as a company we see that some form of government regulation is coming. We believe that any major development, like a coal-to-liquids project like this one, is going to have to have a responsible solution for carbon. So we're moving ahead in a business sense of taking that into account and building that into our plant.

Monica Trauzzi: How would that affect your day-to-day business?

John Ward: Well, again one of the beauties of the coal-to-liquids technology is we exist to create a variety of products. The term of art in the industry is polygeneration. We're not just going to make fuel at these plants. We're going to make electricity to sell onto the grid. We're going to make different kinds of fuels; gasoline, diesel fuel, jet fuel. We will make chemical feedstocks. We will make carbon dioxide to sell for enhanced oil recovery or whatever other uses we can. There's a lot of flexibility in the design of these plants so that depending on where you are and what your market opportunities are you may make more or less of one thing or another. So, again, we don't view the carbon as a problem to deal with. We view that as part of the product mix that we can design into these plants.

Monica Trauzzi: All right. We're going to end it there. Thanks for coming on the show.

John Ward: Thank you very much.

Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.

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