NMA's Gerard talks about the benefits, challenges of surging coal demand

Over 100 new coal plants are now on the drawing board, marking a pronounced shift back to coal after years of electrical power plant construction focused on natural gas as the fuel of choice. Coal is relatively inexpensive and abundant, but without deployment of new technologies it is a relatively outsized source of C02, mercury and other emissions. Will Congress fund the research that will help get "clean coal" to the market? Will energy companies build these new plants with IGCC and other technologies that are expensive but can radically reduce emissions? National Mining Association President Jack Gerard joins OnPoint to discuss these issues just as the Senate Energy Committee is set to tackle these thorny questions at a conference March 10.


Brian Stempeck: Hello and welcome to OnPoint. I'm Brian Stempeck. We're joined today by Jack Gerard, president of the National Mining Association and also Darren Samuelsohn, senior reporter with Greenwire and Environment & Energy Daily. We're here today to talk about coal. Mr. Gerard thanks a lot for joining us.

Jack Gerard: Thank you, it's good to be here today.

Brian Stempeck: First question we have for you is Clear Skies got delayed last week, again, supposedly it's going to be Wednesday. Is that going to happen? Does this bill still have legs in Congress?

Jack Gerard: Well, we certainly hope it happens. We believe it does have legs. I guess the real question now is to find a balance. We're quite confident they can produce a result. We're pleased that we believe there's some serious negotiation going on between the Republicans and Democrats, trying to sort out some of the differences in opinions, some different views on what the bill should look like. We're hopeful it will be enacted. We think it's a critical piece of legislation, both for the environment and for energy production in the United States. So we hope they will come to some resolution to find a fair middle ground and to move the legislation.

Brian Stempeck: Where do you see the areas of compromise being? There's talks going on between both sides. Senator Voinovich is making a really strong effort to try and bridge the gap here. Where could we see a potential compromise to move this thing forward?

Jack Gerard: Well, I think there's lots of parts in play at this time. It's difficult to know any given point or any given piece that will be the compromise area. I think right now there's a lot of talk, obviously, surrounding CO2 for example, but I think we're pleased to note that people recognize that mandatory caps and controls probably aren't the way to go. They're stepping back from that and begin to focus more on technology and the development of technologies to begin to deal with a variety of emissions down the road and further improvement. So I think there's a number of areas where we might find a middle ground or compromise. I think it's too early to predict which one might tip it over the top and move forward it, but there are a number of issues in play.

Darren Samuelsohn: Right now, on the issue of CO2, in terms of a compromise, so far Senator Inhofe and Senator Voinovich have put forward about, I think, it's $650 billion in incentives for integrating gasification combined cycle power plants. That hasn't been enough though to swing a vote from Baucus, Obama, Carper, Chafee, the four people who are most focused on right now. So clearly there's going to have to be a little bit more, maybe a lot more. You're saying that you think the bill will pass, but where's the movement on that?

Jack Gerard: Well, there's a combination of things I think involved here Darren. First of all, when you look at the R&D money as it relates to IGCC or a variety of other technologies the thing we believe is a very positive move is the recognition now that coal is truly the fuel of the future. That coal is here to stay. It's going to have to play a critical role in our development of energy sources for now as far as we can see. So we're now focused on the real heart of that matter, which is technology. How do we find cleaner burning technology? How do we develop the resources to get us to what we as industry are committed to, which is a zero emissions power plant. Once we get to that point, we have made significant progress. We can control the emissions and yet continue to provide the low cost, affordable, reliable energy. But as it relates to where that compromise might be, there have been a number of proposals out there, but my sense is a number of different members have different issues that they want to be focused on.

Darren Samuelsohn: Probably, you say there's a recognition that coal will be the energy of the future. There's also maybe a recognition from the right, from your industry, that climate change requirements are going to be in place at some point in the future?

Jack Gerard: Well, I'm not sure that it's a recognition that climate change requirements will be in place. I think it's a recognition that this is a serious debate and we want to be part of that debate.

Darren Samuelsohn: OK.

Jack Gerard: So when we look at the climate issue, we clearly believe that mandatory caps are not the right approach and without getting into the science, I mean, we can all put up our various scientists and our experts on one side of this or the other side of this. We believe, more fundamentally, when you look at coal as our single largest form of energy in the United States, currently providing over 52 percent of the electricity to all consumers and our largest reserve of future energy, that technology is the answer to all those concerns. Whether you're talking about CO2 or you're talking about NOX or SO2 or mercury, we've got to focus on the technology. Our industry, along with the utilities sector, the rail industry and others who transport our product are focused on trying to develop that zero emissions power plant. When we get to that point we can use coal in a very responsible way, much as we've demonstrated over the past --

Brian Stempeck: Does that mean that you support a bill like what Senator Hegel is talking about? He has proposed three measures, one of which would provide more tax incentives, research and development credits for more clean coal. Also we talked about, potentially, kind of a long shot as a compromise in Clear Skies as a way to deal with carbon. Senator Hegel, on his part, has said he wants to set hearings on the bill for the coming year. Is that something that NMA would support?

Jack Gerard: We're still looking closely at the details of the Hegel proposal, but I think conceptually, again, the important thing is he's focused on technology. He said how do we get to that next-generation power plant? How do we get to a point to where we can take this vast resource of coal in the United States and burn it more cleanly? He's focused on technology development. He's also focused on a critical factor we don't hear a lot about and that is how do we export this technology around the world? When we look at what's going on in China and what's likely to occur in India and places like that, in the future they're going to be huge coal consumers and if we're serious about global issues we've got to address this in a global fashion. Clearly not the approach that Kyoto took and therefore Kyoto ought to be laid aside and let's look at a responsible approach to deal with this. To me it all comes right back to the fundamental question of technology development.

Darren Samuelsohn: Can I pull you back to something on Clear Skies?

Jack Gerard: Surely.

Darren Samuelsohn: With respect to mercury. If Clear Skies doesn't move, even if Clear Skies is moving, March 15 the EPA has to put out a regulation for mercury controlling from power plants. There's going to be winners and losers in this rule. Could you kind of give us a sense of who are the winners and who are the losers and what's at stake for the subbituminous, the bituminous and, I guess, the lignite producers around the country?

Jack Gerard: Well, there's lots of different opinions on who losers and winners might be, but I think stepping back and looking at it more broadly, clearly the best approach to regulation, particularly of mercury, is a legislative approach. That's why we're actively pushing and supporting Clear Skies. What will happen in the rulemaking, though there is an agreement to move ahead with that in the middle of this month, is you'll have litigation over that because some people perceive themselves as losers and others perceive themselves as winners. At some point that will be enjoined. It will go right back to the court system, and we'll spend years figuring out what the rule means and what it requires of us. That's why we think we should step back and as a matter of policy develop a legislative approach like a multi-emissions bill, Clear Skies, whatever you want to call it and put into law what the standards are. Give the industry certainty. Let us know what the rules of the game are and we'll meet those standards, as long as they're based on technology standards to where we know what is we're required to do to operate without being tied up in the court system for the next two decades.

Darren Samuelsohn: Even if there's a trading program like Clear Skies and there's a cap of 34 tons for mercury emissions, does that benefit Western coal versus Midwestern coal?

Jack Gerard: Well again, some people have s difference of opinions on that and how you might handle the allowances or the allocation systems under it, but I think overall it clearly benefits the public broadly. That is it will continue to control emissions, but we need to focus on the technology development. It's too early to predict how the final rule might come out anyway. There's been a lot of comments on, there've been a number of different groups who commented, saying, "Well, some things ought to be adjusted." I don't know what that final rule looks like and until we see that it's difficult to predict who winners and losers might be.

Brian Stempeck: Let's turn to the energy bill for a minute. There's a coal summit coming up on Wednesday, similar to a natural gas summit that the Senate Energy Committee had a few weeks ago. What are you expecting to get out of this summit? Isn't this information, basically, kind of old hat by now after, you know, years of energy bill debate?

Jack Gerard: No, I don't think so. I think the coal summit is a very positive step and a recognition on the part, particularly, of the Senate Energy Committee leadership. Chairman Domenici, as well as ranking member Bingaman and others, are talking now about our single largest fuel source coal, which is critically important to be entire energy debate. When we have a natural gas discussion we have to talk about coal. Why? Because some of the natural gas prices have been pushed up to record highs because we can be, we should be using more coal, if you will, to help bring those prices down. Coal will not only be the fuel of the future, but it can help us relieve the pressure on natural gas prices and other things in our economy. If we want low cost, affordable, reliable energy we need to consider coal. So this energy summit and getting together to talk about coal is critically important. The chairman wants to talk about the consumption side, production side, the impacts to the environment, technology development, transportation, it's a good full afternoon of the various issues we need to look at in developing an energy policy.

Darren Samuelsohn: One of the big pieces to the energy bill is the tax title and right now it's at, I think, $6.7 billion is the limit the Senator Domenici has said will be going forward this year. That's way lower than what was in play last year.

Jack Gerard: Right.

Darren Samuelsohn: Can you live with the number that's there, $6.7 billion, in terms of incentives for coal?

Jack Gerard: Well, we'd always like more and obviously we believe the more the better in terms of advancing technology development. We would prefer a bill much closer to last year's obviously. We recognize these are tight times. The war in Iraq and a variety of other things that are going on as it relates to federal government expenditures. We recognize that number will come down. We are hopeful that people will recognize the need to find some incentive to commercialize these new clean coal technologies. That's really the component we're looking at in the tax portion. What does it take to take this high-risk technology and incentivize companies to invest billions of dollars and move it to the marketplace? It has a huge public health benefit. It has a huge benefit to consumers who rely on electricity. So we're hopeful that Congress will recognize the role those tax incentives will play and provide ample.

Brian Stempeck: How much money is in the tax package for coal? Of that $6.7 billion, roughly, how much are we talking about going towards clean coal?

Jack Gerard: Well, it's difficult to say now, because that number, 6.7, has come down dramatically from where we were last year, probably half or less from where our earlier discussion was. Early on we were talking around the $2 billion range or a little over in the tax incentive side and then a variety of other programs as it relates to the research and development. But we believe we need in the two, two-plus billion dollar range to make a serious run at truly incentivizing and commercializing some of these technologies. So we hope the numbers move up, not down.

Brian Stempeck: Another clean coal funding issue is FutureGen, which is the White House's proposed zero emissions plan.

Jack Gerard: Yes.

Brian Stempeck: It's about a $1 billion plan, money spread over the next 10 years or so. Last year the White House asked for about $240 million. Congress said, and they wanted to fund the program in the later years, going out to about 2010, and what Congress appropriators said, we're not going to do that. They pretty much rejected the White House request and it looks like we're seeing the same thing play out this year. Is there anything new on the FutureGen debate? I mean, are appropriators going to pay for this project?

Jack Gerard: Well, there's a number of things. FutureGen is a research and development platform. As you mentioned, it's a billion dollar program that's designed to get us to that next technology and to move us to the hydrogen economy based on coal-fired power. When you look at that billion dollar proposal only $650 million of that actually comes from the federal government.

Brian Stempeck: Right.

Jack Gerard: The industry is putting in $250 million of that. The history has been, since the clean coal program started, that industry has matched the government dollar almost two to one. There's been over $5 billion expended in this area and two out of every three dollars has come from the private sector. Likewise with FutureGen, the private dollars will help flow to offset that. There'll be some foreign contribution, because, again, this technology is designed to be global. The president has proposed this again in his budget. He's attempted to fund it under these tight budgetary times. What the Hill provided last year was what was needed in terms of the continuum of funding to keep the project going.

Brian Stempeck: But it was only $18 million, it was much smaller than what the White House asked for, and they denied their request to appropriate more money in later years.

Jack Gerard: But that's all that's required under the current plan in terms of what's needed in any fiscal year to fund this project.

Brian Stempeck: Right.

Jack Gerard: And my expectation is this year that they will again fund another 18 or so that they need to keep the project on track and then, obviously, they would like to see more commitment in the out years so as the industry comes to the table with their significant contribution they'll have some assurance those other dollars will be there.

Brian Stempeck: Has the industry comes in the table? I know there was some rumors going around a few weeks ago that industry and DOE were ready to sign a partnership saying, yes we will provide this $250 million for FutureGen. Has that happened yet or when is that going to happen?

Jack Gerard: Well, they're working on it right now. Even as we speak they're in dialogue and conversation working out the details. There are number of issues here beyond just the funding obviously. You're looking at sequestration issues and a variety of new cutting-edge developments and technologies. It's going to take a while to hammer out an agreement, but they're actively pursuing that agreement now. We expect in the next few months that they will come out with some signed document and industry is serious about this. This is real money. We're putting it on the table because we believe this is the responsible thing to do and it's truly the future for our country.

Darren Samuelsohn: In the meantime, between now and FutureGen, which is still quite a ways off, we still have, I think, it's a hundred power plants have been proposed, new power plants around the country.

Jack Gerard: A hundred and eighteen.

Darren Samuelsohn: A hundred and eighteen it's up to now. As we know, I think only a handful of those are actually the IGCC plants, which are the steppingstone for carbon sequestration. How do you encourage more IGCC plants to get put into that mix, you know, of the hundred or so, if they get built, how many will actually be IGCC and how do you encourage more?

Jack Gerard: Well, this really gets back to the tax question. The reason I say that, right now, and people have differing views of this, but most people will tell you somewhere from 10 to 20 percent differential in cost from an IGCC plant to a traditional pulverized coal plant. Really what we're trying to do with this technology development, with the tax incentives and others, is to begin to build some of these, to get them commercialized, to get them into the marketplace because that, once that happens, like with any other industry, you begin to drive the costs down. Once you do that then a lot of your rate base or your public utility commissions and others who have to look at these costs will say, well, these are comparable prices, so when we were looking at protecting the consumer, yes we can go with this latest greatest technology that gives us great environmental improvement, but it does it in a cost effective way or we're not gouging the consumer. So that's really why we're looking at things like tax incentives, to find that very slight differential that will incentivize someone to take that risk and we're talking billion dollar decisions. Once we do that we believe it'll come into the marketplace and you'll see more of the latest greatest technologies.

Darren Samuelsohn: What's your proportional, I guess, how many of those 100 do you think could possibly be IGCC when it's all said and done?

Jack Gerard: I mean that really varies, when you look around the country it's really remarkable what's happened to coal-fired power just over the last one or two years. It's often said that we had more proposals for coal-fired power plants in the last year than we've had in the previous decade and that's true. The balance was tipped to gas in the '90s. There was a clear preference through regulation, through government support, for gas-fired power and what that has done is put us in the current, I believe, gas crisis that we're in. We've driven the price of natural gas up. We're using it for base-load electricity generation when it can be used for other things. We need to think and go back to coal and say coal is the preferred choice for base-load power. We'll help bring that natural gas price down as we continue to build more coal-fired power plants.

Darren Samuelsohn: If I can just stick on this for one more second.

Jack Gerard: Sure.

Darren Samuelsohn: In terms of these new power plants, the environmental groups will say that if the country builds a hundred new power plants and a significant amount of them are not IGCC, coupled with new coal in China and India, pretty much, in terms of the climate change carbon debate, that we're sunk and climate change will be irreversible at that point. I mean, do you have a response to that prognosis?

Jack Gerard: Yeah. I don't think they're right. I think they're just factually incorrect and what I mean by that is, and we're pleased because some of our sharpest critics, some who come from the environmental community, are some of the greatest advocates for some of the new clean coal technologies. They too recognize that the American public needs coal as the base-load power in this country. They're now starting to say, you know, maybe we can burn this cleanly. Our history shows, over the last two decades, in terms of real emissions, we've come down roughly 40 percent. While at the same time, our economy is growing gangbusters. The amount of electricity in this country has grown and likewise, the amount of coal produced and consumed in this country has grown dramatically. So what we're seeing is as emissions are coming down we're using more and more coal. Our strategy is to stay on that glide path, to get to zero emissions where we can take coal, which is our most wide form of energy in this country. Our reserve in this country is equal to entire world oil reserve on a Btu [British thermal unit] basis. It should be the fuel of choice and is truly the fuel of the future.

Brian Stempeck: All right. Well, we're out of time. Jack thanks for joining us today. I'd like to thank both of our guests, Darren Samuelsohn, senior reporter with Greenwire and Jack Gerard, president of the National Mining Association. I'm Brian Stempeck. This is OnPoint. Thanks for watching.

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