**March 10^th^ Future of Coal Conference**

**Participant List**

**Question 3: Financial and Technological Improvements: What
technological improvements in coal use are most important to pursue?
What financial and/or regulatory mechanisms are necessary to bring these
technological improvements to market?**

**Participants:**

-   Coal Based Generation Stakeholders Group

-   Coal Utilization Research Council

-   Electric Power Research Institute

-   General Electric

-   National Association of Regulatory Utility Commissioners

-   William Rosenburg -- Harvard University

**Senate Energy and Natural Resources Committee**

**Coal** **Conference**

**Coal Based Generation Stakeholders Group**

**[Executive Summary]{.underline}**

The Coal Based Generation Stakeholders Group (CBGS) is a diverse group
of Chief Executive Officers of investor owned utilities, rural electric
cooperatives, public power companies, coal producers, coal-hauling
railroads, and the associations that represent these industries. The
CBGS strongly believes that the option to generate electricity from coal
-- which remains America's most abundant energy resource -- must be
preserved and enhanced because it strengthens our economy, ensures the
generation of affordable and reliable electricity, maintains a diverse
fuel supply and provides secure jobs for American workers.

Coal is not only a fuel of the present it is a fuel of the future. As
demand for electricity increases over the next several decades,
electricity from affordable and domestic coal will increase apace. The
United States' existing coal fleet will play a critical role in meeting
our nation's electricity supply and should continue to operate through
their economic life. New capacity will also be required, and will be
built using a suite of advanced technologies that range from advanced
pulverized coal to integrated gasification systems. This increase in
coal use will be accompanied by a continuous decline in emissions an
extension of a trend that began over two decades ago. The members of
CBGS believe that is not only desirable but is absolutely necessary for
the future of coal.

The Coal Based Generation Stakeholders Group has agreed on a "*Vision
for Achieving Ultra-low Emissions from Coal Fueled Electric Generation*"
(*Vision*) which defines the attributes that new coal-fueled electric
generating plants that could be commercially constructed by 2025-2035
would have given the successful conclusion of a robust and well funded
research program. These attributes include: greater than 99% removal of
SO~2~, NO~x~ and particulate matter; 95% removal of mercury; 50% - 60%
efficiency; and the ability to capture and sequester carbon.

The *Vision* outlines a common coal technology roadmap, or pathway that
must be followed to achieve these goals. The research and development
program that is required to make the goals a reality will require a
concerted, well funded, and long term effort by government and industry
alike. As the roadmap shows, no one technology will dominate, but rather
a suite of technologies will be needed. The Department of Energy will
play a vital role in working together with industry to accelerate
technology development in order to provide clean, affordable reliable
energy from coal.

**Question Three. Financial and Technological Improvements: What
technological improvements in coal use are most important to pursue?
What financial and/or regulatory mechanisms are necessary to bring these
technological improvements to market?**

This statement is submitted on behalf of the Coal Based Generation
Stakeholders Group (CBGS), a diverse group of Chief Executive Officers
of investor owned utilities, rural electric cooperatives, public power
companies, coal producers, coal-hauling railroads and the associations
that represent these industries. The CBGS strongly believes that the
option to generated electricity from coal -- which remains America's
most abundant energy resource -- must be preserved and enhanced because
it strengthens our economy, ensures the generation of affordable and
reliable electricity, maintains a diverse fuel supply and provides
secure jobs for American workers.

The members of CBGS believe that continuous improvement in reducing
emissions from coal-fueled plants through the use of advanced
technologies is not only desirable it is absolutely necessary if coal
based generation is to increase -- both to meet new demands for
electricity and to free more expensive natural gas for other uses.
Approximately six months ago, the CEO's of CBGS members agreed that the
group should develop a vision that describes the efficiency goals and
emission reduction targets of an "ultra-low" coal-fueled plant of the
future. The CEO's agreed that the vision should include a specified
research and technology path that would be required to meet these goals
within a 25 -- 35 year time frame. The result, the "*Vision for
Achieving Ultra-Low Emissions from Coal-Fueled Electric Generation,"*
was unanimously adopted by the CBGS members in early January 2005.

The members of the CBGS agree that we cannot limit our pursuit for
technological improvements to one technology alone. Rather a suite of
technologies that range from advanced pulverized coal to integrated
gasification combined cycle (IGCC) technologies will be required in
order to most effectively use the range of coals that are available in
the United States. These new plants will incorporate both advanced
generating and emissions reductions technologies and will ensure that
coal can be used in ever increasing quantities for power generation
while emissions continue on a downward path.

The *"Vision for Achieving Ultra Low Emissions from Coal Fueled Electric
Generation"* is attached as an appendix and is summarized in the
following two pages.

***Coal is a fuel of the present.*** Most of the 1.143 billion short
tons of coal that will be mined in the U.S. this year will be used to
generate 52 percent of the electricity that our nation uses.

***Coal must remain a significant fuel of choice in the future***. Coal
is our most abundant fossil energy reserve, domestically and globally.
By 2025, 1.5 billion tons of coal will be produced in the U.S. with the
majority (over 90%) used to produce 52 percent of the electricity that
powers our nation. Low-cost electricity has been shown to drive economic
prosperity and a better quality of life. Coal-fueled power plants are a
major contributor to providing this low-cost electricity.

***Advances in technology will ensure continued coal use while
addressing the concerns about the environment.*** The increase in
coal-fueled generation over the past several decades has been
accompanied by impressive declines in emissions of SO~2~, NO~x~, and
particulate matter. Mercury emissions have also declined. Technological
advances will allow these trends to continue even as our nation uses
more coal in both the existing coal-fueled fleet and in new coal-fueled
capacity.

***Our existing fleet of coal-fueled plants.*** Existing coal-fueled
power plants play a critical role in meeting this country's electricity
supply and should continue operate through their economic life.
Impressive emissions reductions have already been achieved in these
plants and advances in pollution control technologies will result in
still lower emissions from this important electric generating capacity.

***New coal-fueled capacity.*** New capacity is also needed to meet
electricity demand. Between now and 2025, electricity demand is expected
to increase by about 50 percent. At least 263 Gigawatts (GW) of new
electric generating capacity must be built to meet this demand and to
replace the very small amount of capacity that will be retired in this
period. Coal generation is expected to increase as well by nearly 50%,
translating into nearly 100 GW of new coal-fueled capacity built during
this time. Currently, plans to build one hundred or more new coal-fueled
plants have been announced. These plants will use a suite of
technologies ranging from advanced pulverized coal to integrated
gasification combined cycle (IGCC). SO~2~, NO~x~, particulate matter,
and mercury emissions from these new plants will be very low, and all
will have higher efficiencies that will also assist in lowering carbon
dioxide (CO~2~) emissions for each kilowatt hour of electricity
produced.

***New technologies will lead to ultra-low emission levels.*** The
coal-fueled electric generating industry is working in partnerships with
the Department of Energy (DOE) to develop and commercialize the next
generation of coal-fueled generating technologies. These programs, which
include jointly-funded R&D, the Clean Coal Power Initiative, and the
FutureGen project, are designed to move promising technology along the
R&D path to commercialization. Ultimately, this work is expected to
achieve ultra-low/near zero net emissions from new coal-fueled
generating plants. This work includes technologies that capture and
sequester emissions of CO~2~.

While there is still considerable debate about the need to reduce CO~2~
emissions, it is essential that the federal government support R&D
efforts that will allow coal to be fully utilized in existing plants and
in new plants well into the future no matter how issues related to
carbon are resolved. Achieving continuous improvement in the
environmental performance of America's coal-fueled generating fleet will
require that the nation pursue an agreed-upon, aggressive, and sustained
technology development program. This will require billions of dollars in
new investments shared by the public and private sector.

***Vision of ultra-low emissions.*** If the development of these new
technologies is funded and they are successful, new coal-fueled plants
that could be commercially constructed by 2025 to 2035 would feature:

-   Greater than 99% removal of SO~2~, NOx and particulate matter;

-   95% removal of mercury;

-   50% to 60% thermal efficiency;

-   The ability to capture and sequester CO~2~:

    -   With technologies that allow cost -- effective CO~2~ capture
        from power plants; and

    -   With reliable and cost-effective methods of sequestering
        (*i.e*., the permanent storage of) CO~2~ at the scale necessary
        to manage billions of tons of power plant CO~2~ emissions
        worldwide.

Construction and operating costs of these plants would not force a
material increase in the cost of electricity.

***The Pathway to Ultra-low Emissions.*** Industry and government have
jointly developed a common coal technology roadmap, or pathway, to
improved performance and lower emissions technology. This roadmap
defines the status of existing coal-fueled generating technology,
establishes objectives for future technology, and describes the
technology research, development, and deployment paths to reach this
ultimate goal: ultra-low/near zero net emissions from low-cost
coal-fueled electricity power generation.

No one technology will dominate, but rather a suite of technologies will
be needed. The Department of Energy plays a vital role in working
together with industry to accelerate technology development in order to
provide clean, affordable reliable energy from coal.

***The United States' coal-fueled electric generators, coal producers
and coal- hauling railroads believe that continuous improvement in
reducing emissions from coal- fueled plants is not only desirable, it is
necessary.*** Continuous reductions in emissions using advanced
technologies can be a reality. The alternatives -- regulation through
litigation, imbalanced policymaking, and over-reliance on foreign energy
sources -- threaten national security and our economy. Industry and
government can and must agree on reasonable milestones that enable
significant environmental progress, greater investment certainty, energy
security, and the low-cost electricity that drives economic prosperity
and a better quality of life.

The Associations representing CBGS members include the Association of
American Railroads, the Center for Energy and Economic Development, the
Edison Electric Institute, the National Mining Association and the
National Rural Electric Cooperative Association.

**APPENDIX TO CBGS QUESTION THREE**

**BEGINS ON THE FOLLOWING PAGE**

**A VISION FOR ACHIEVING ULTRA-LOW EMISSIONS**

**FROM COAL-FUELED ELECTRIC GENERATION**

***THE COAL BASED GENERATION STAKEHOLDERS GROUP***

***JANUARY 2005***

***Preface***

***This long-term vision of coal-fueled electricity in the United States
represents the consensus of chief executive officers from our nation's
largest coal consumers, rail carriers and producers, and the presidents
of the associations that represent them.***

***As our most abundant domestic energy resource, coal is vital to
ensuring low-cost electricity and providing for an economically
prosperous future.***

***In an era of rising energy costs, low-cost electricity from coal
extends longevity, improves the quality of life, strengthens the
economy, protects national security, and offers the best potential for
increasing energy independence.***

***These goals can all be accomplished while working toward continuous
improvement in emissions, with an ultimate goal of ultra-low emissions
from coal fueled electricity.***

**A VISION FOR ACHIEVING ULTRA-LOW EMISSIONS**

**FROM COAL-FUELED ELECTRIC GENERATION**

**[Introduction]{.underline}**

Coal is a fuel of the present. In 2005 a record 1.143 billion short tons
of coal will be mined in the United States. Most of this coal will be
used to generate approximately 52 percent of the electricity that our
nation uses to light, heat, and cool our homes, schools, hospitals and
other community facilities and to run our factories[^1]

Coal is and must remain a fuel of choice in the future. Coal is our most
abundant domestic fossil fuel resource, both in the United States and
world wide. By 2025, 1.5 billion tons of coal will be produced in the
U.S. with the majority used to produce 52 percent of the electricity
that powers our nation[^2] . By 2025 small amounts of coal could be used
to make liquid fuels and/or hydrogen. According to the International
Energy Agency, global coal use will continue to increase over the next
20 years. In 2025, coal will be the basis of over 42 percent of
electricity produced globally with a higher dependence on coal in the
developing world, including China (78 percent) and India (70
percent)[^3] .

How can coal-fueled electric generation increase while addressing the
concerns about the environment? As this paper will discuss, our nation
will need to rely both on the existing coal-fueled fleet and on new
advanced clean coal-fueled capacity to meet growing electricity demand.
To date, great strides have been made in developing technologies that
produce electricity from coal while reducing emissions of sulfur dioxide
(SO~2~), nitrogen oxide (NO~x),~ particulate matter and other air
pollutants such as mercury. The suite of advanced technologies that will
comprise the new coal-fueled fleet will continue this trend. And work is
underway to develop and commercialize technologies that are expected to
achieve ultra-low/near zero net emissions from new coal-fueled
generating plants. This includes technologies to address emissions of
carbon dioxide (CO~2~). **The United States' coal-fueled electric
generators, coal producers and coal-hauling railroads believe that
continuous improvement in reducing emissions from coal-fueled plants is
not only desirable, it is necessary**.

**[Rising Coal Use and Declining Emissions]{.underline}**

Coal has always been an important part of the United States energy mix
and an integral part of our increasingly electrified economy. Coal is a
domestically abundant energy reserve. The United States has recoverable
coal reserves of approximately 275 billion tons, enough to last over 200
years at current recovery and usage rates. This is a significant
advantage compared to domestic reserves of petroleum and natural gas.
Globally, coal is an equally important resource.

Since 1980 coal use for power generation in the United States has
increased by over 75 percent from 570 million tons per year to just over
1 billion tons annually. Projections show that the rate of growth in
electricity demand in the U.S. will remain strong through 2025 and
beyond, as illustrated in Figure One. This will be accompanied by nearly
a 50 percent increase in coal fueled electricity generation.[^4]

Historically, electricity demand has paralleled national GDP and
population growth, and these upward trends are expected to continue as
the U.S. economy, population and energy needs grow. Low-cost electricity
has been shown to drive economic prosperity and a better quality of
life. Coal has been a major contributor to low-cost electricity. In
2003, the average cost of coal delivered to the electric generator was
76 percent less than that of natural gas.[^5] This differential is
forecast to stay approximately the same through 2025 in constant
dollars.[^6] Sources of electricity generation other than coal -- hydro,
nuclear, natural gas, oil, and renewables -- are limited by cost,
availability of fuel, or siting constraints. Thus, coal, which now fuels
more than half of electric generated, is expected to maintain or
increase its share of the electricity market.

![](media/image1.wmf){width="4.995833333333334in"
height="3.754166666666667in"}

> Source: EIA: Historical data: MER, December 2004; Projections Annual
> Energy Outlook, 2005

The projected increase in coal use will come with a continued
improvement in air quality. The aforementioned 75 percent increase in
coal use since 1980 was accompanied by an equally impressive decline in
emissions of SO~2~, NO~x~ and particulate matter. Collectively,
emissions of SO~2,~ NO~x~ and particulate matter declined by 40 percent
over this time period. At the same time, existing pollution controls
reduced mercury emissions by some 40 percent below uncontrolled levels.

As Figure Two shows, air emissions and emission rates for NO~x~ and
SO~2~ and the emissions rate for mercury are expected to continue to
fall[^7] even as coal use increases.

![](media/image2.wmf){width="4.8805555555555555in"
height="3.6597222222222223in"}

Source: Historical Data from EPA, Projections, AEO 2005

As shown in the table below, the proposed Clean Air Interstate Rule
(CAIR) and the proposed Clear Skies Act would both impose more stringent
caps on power plant emissions. With continuous development of
technology, and retrofitting existing plants with today's technologies,
there is no doubt the industry will be able to meet the 2018 goals of
the Administration's multi-emissions legislation (The Clear Skies Act)
as proposed in late 2003 and re-introduced in 2005.

***U.S. Coal Plant Annual Emissions***

(In Million Tons)

  ----------- ----------- ------------ ------------ ----------- -----------
              2003 actual 2010 Clean   2015 Clean   2010 Clear  2018 Clear
              emissions   Air          Air          Skies Act   Skies Act
                          Interstate   Interstate   Cap         Cap
                          Rule Cap     Rule Cap                 

  SO~2~       10.6        4.5          3.1          4.5         3.0

  NO~x~       4.4         1.8\*        1.5\*        2.1         1.7
  ----------- ----------- ------------ ------------ ----------- -----------

\* - Clean Air Interstate Rule applies only to 28 Eastern States and DC
for SO~2~, plus Connecticut for NO~x~

Emissions reductions are not limited to SO~2~, NO~x~, particulate
matter, and mercury. Both power sector carbon intensity (as measured as
the ratio of CO~2~ emissions to GDP) and coal-fueled generation carbon
intensity are expected to continue their downward trends due to greater
efficiencies in combustion technologies and, ultimately the ability to
capture and sequester carbon cost effectively. (See Figure Three.)

![](media/image3.wmf){width="4.8805555555555555in"
height="3.6597222222222223in"}

> Source: EIA: Historical data: Annual Energy Review; Projections are
> based on the forecast included in AEO 2005.

Achieving continuous improvement in the environmental performance of our
coal-fueled generating fleet will require that the nation pursue an
agreed-upon, aggressive, and sustained technology development program.
This will require billions of dollars in new investments shared by the
public and private sector.

**[The Need for New Capacity Employing Multiple
Technologies]{.underline}**

The nation will continue to rely on the existing 876.3GW[^8] generating
fleet (including 303GW of coal-fueled capacity) to meet electricity
demand. But that is not enough to generate the 50 percent increase in
electricity that will be required by 2025. Between now and 2025, at
least 263GW of new electric generating capacity must be built to meet
new demand and to replace the very small amount of capacity that will be
retired in this period. As coal generation is expected to increase by
nearly 50 percent, the nation must rely on both the existing coal-fueled
fleet and nearly 100GW of new coal capacity that must be built during
this time.[^9]

As discussed below, new coal-fueled capacity will need to incorporate
advanced generating and emissions reduction technologies. [No one
technology will dominate rather a suite of technologies will be
needed.]{.underline} These will include advanced pulverized coal and
integrated gasification combined cycle (IGCC) technologies developed to
use the range of coals produced in the United States.[^10] Importantly,
not only are these advanced coal technologies being designed and
demonstrated to achieve ultra-low emissions from coal-fueled plants,
they are being developed to ensure reliability from coal use and
continued low cost electricity to the consumer.

**[Ultra-low Emissions Defined]{.underline}**

It is important to note that emission levels that are achievable and
commercially available today would have been viewed as ultra-low by
designers of the current fleet of coal-fueled plants that were built in
the 1970s. The 100 or more new coal-fueled power plants that are
currently proposed for construction will, according to publicly
announced plans, achieve extremely low emissions through the use of both
pulverized coal and IGCC. These plants will have higher efficiencies
than the existing fleet, which will also assist in lowering CO~2~
emissions. And tomorrow's energy plants, fueled by coal and commercially
constructed within the next 20 to 30 years, will have an even greater
ability to convert coal cost-effectively to electricity and prevent or
capture emissions.

A new [long-term]{.underline} definition of "ultra-low emissions,"
plants that could be commercially constructed in the 2025 to 2035 time
period would feature:

-   A greater than 99% removal of SO~2~, NO~x~ and particulate matter;

-   95% removal of mercury;

-   50% to 60% thermal efficiency; and,

-   The capability to capture and sequester CO~2~.

Construction and operating costs of these new plants would not force a
material increase in the cost of electricity.

The goals outlined above build upon the more than 25 years of steady
emission improvement made by the coal-fueled electricity generating
community (illustrated in Figure Two above). The new advanced
technologies that will be put on line in the next decade will provide
for even more dramatic reductions in emissions of SO~2~, NO~x,~
particulate matter, and mercury. These low emissions levels would have
been considered "ultra-low" emissions even 15 years ago. And, as defined
above, the definition of "ultra-low" implies even lower emissions in the
technologies of tomorrow.

**[Strategy for Achieving Ultra-low Emissions]{.underline}**

The electricity generating industry, working in conjunction with the
Department of Energy (DOE), is developing the next generation of
coal-fueled generating technologies though basic R&D, the Clean Coal
Power Initiative (CCPI), and the FutureGen[^11] project. It is vital
that these programs, jointly funded by industry and DOE, continue to
receive long-term funding so that the goal of moving promising
technologies along the R&D path to full-scale commercial demonstration
is achieved in a timely manner. Industry, alone, is unable to assume the
financial risks of demonstrating the technological advancements
envisioned in these projects. The government must play a significant
role in accelerating technology development to meet the low-emission,
low-cost energy needs of all Americans, and ultimately the needs of the
world's fastest growing developing countries.

The table below shows the path coal-fueled electricity's performance has
taken and performance goals we aspire to meet through R&D, the CCPI
program, and FutureGen. Provided these programs are adequately funded
over the long term, and are successful, these technologies would be
available for widespread deployment, within the next two to three
decades.

***Coal Vision Goals for New Power Plants***

+----------------+------------+------------+------------+------------+
| Performance    | Typical    | Range of   | Range of   | DOE        |
| Target         | Plant 1990 | New Plant  | DOE-CCPI   | /CURC/EPRI |
|                |            | Air Permit | Award      |            |
|                |            | Ap         | Winners    | Roadmap    |
|                |            | plications |            | Goals      |
|                |            | (          | 2004       |            |
|                |            | 2001-2004) |            | 2020       |
+----------------+------------+------------+------------+------------+
| SO~2~ Removal, | 80-90      | 95-98      | 99+        | \>99       |
| %              |            |            |            |            |
+----------------+------------+------------+------------+------------+
| NO~x~ lb/MMBtu | 0.5        | 0.05-0.10  | 0.01 or    | 0.01       |
|                |            |            | less       |            |
+----------------+------------+------------+------------+------------+
| Mercury        | 30-70      | 50-80      | 95+        | 95         |
| Removal, %     |            |            |            |            |
|                | Co         | Co         |            |            |
|                | -Benefit\* | -Benefit\* |            |            |
+----------------+------------+------------+------------+------------+
| CO~2~ Removal, | N/A        | N/A        | N/A        | 90         |
| %              |            |            |            |            |
+----------------+------------+------------+------------+------------+

\* A limited amount of mercury removal is possible from the "co-benefit"
of controls that are installed to reduce SO~2~, NO~x~ and particulate
emissions.

Significant progress is being made in emissions reduction. Ultra-low
emissions could potentially include CO~2~, if Congress in the future
determines that CO~2~ reductions are needed and timely R&D is completed.
Achieving meaningful CO~2~ reductions would require significant
technical advances.

EPA has determined that CO~2~ is not a pollutant within the meaning of
the Clean Air Act (CAA). In so concluding EPA noted that the effect of
CO~2~ emissions on the environment is the subject of continuing and
unresolved scientific debate.

While there is still considerable debate about the need to reduce CO~2~
emissions, no matter how the issues are resolved, it is essential that
the federal government support R&D efforts that will allow coal to be
burned cleanly well into the future. The possible need to reduce CO~2~
emissions should be balanced by a respect for economic impacts and from
a perspective that does not result in the displacement of coal for
electric power generation with expensive alternatives in either the
short or the long term, especially imported fuels from politically
unstable areas of the world. Because this issue is likely to remain a
concern, we must focus on developing coal-fueled technologies that are
amenable to cost-effective capture and sequestration of CO~2~ emissions.

Because affordable electricity from coal is essential for the economic
growth of the United States and the health of its citizens, two criteria
must be met if it is determined that CO~2~ emissions should be reduced:

1.  New technologies must be developed that allow cost-effective capture
    of CO~2~ emissions; and,

2.  Reliable and cost effective methods of sequestering (i.e. the
    permanent storage of) CO~2~ must be demonstrated at the scale
    necessary to manage billions of tons of power plant CO~2~ emissions.

The most effective way to accomplish these objectives is through
significant government support of carbon capture and sequestration
technologies.

**[A Technology Pathway to Meet our Goals]{.underline}**

Technologies for the use of coal to generate electricity fall into two
general categories: combustion-based processes and gasification-based
processes. The most common combustion-based processes are
pulverized-coal (PC) and atmospheric fluidized bed combustion (AFBC)
systems. In gasification-based systems, coal is converted into a gas
that is burned in a combustion turbine to generate the steam necessary
to drive a steam turbine, hence the term \"integrated gasification
combined cycle\" (IGCC) to describe the overall process. Gasification
systems also afford the value-added opportunity to convert part of the
coal-derived gas into hydrogen, other fuels including transportation
fuels, and chemicals.

A joint effort[^12] between industry and DOE over the last several years
has led to the creation of a common coal technology roadmap that defines
the status of existing coal-fueled generating technology, establishes
goals for future technology, and describes the technology research,
development, and deployment paths that to reach this ultimate goal. [The
roadmap does not rely on a single technology or single technology path
to reach the goals]{.underline}.

The table below describes technology used in new plants today and
compares the current technology with the goals for future development in
terms of environmental and process performance, and cost. As the table
indicates current new plant technology (i.e. plant performance that is
typical of new technology today, not typical of the existing operating
fleet) achieves low emissions of SO~x~, NO~x,~ and primary particulates
and significant reductions of mercury emissions initially through
co-benefits. The roadmap envisions further incremental improvement.
Proven commercial technology for increased mercury control does not yet
exist, but the roadmap targets technology for that includes substantial
mercury control in the future, at least for new plant applications.

An important aspect of the roadmap is the recognition that future
technology must meet [both]{.underline} cost and environmental
performance goals to be acceptable for broad application.
[Importantly,]{.underline} [the goals outlined in the table below will
not be met without sufficient federal government and industry funding as
described in the details of the roadmap]{.underline}
([www.coal.org](http://www.coal.org/)).

We have a substantial understanding of the technology that must be
developed to ensure that coal-fueled power plants meet future
environmental objectives, as the roadmap demonstrates. There is broad
agreement on the next and subsequent steps needed to realize the goal of
ultra-low/near-zero net emissions from coal-fueled power plants.
Achieving the roadmap goals will require a coordinated program of
research, development, demonstration, and commercial deployment.

***DOE/CURC/EPRI Roadmap Goals***

+-----------------------+-----------------------+-----------------------+
| **[ENVIRON            | **New Plant**         | **New Plant**         |
| MENTAL]{.underline}** |                       |                       |
|                       | **Technology of       | **Technology of       |
| **[PERFORMANCE        | Today**               | 2020**                |
| GOALS]{.underline}**  |                       |                       |
+-----------------------+-----------------------+-----------------------+
| **Air Emissions**     | 98% SO~x~ removal     | \>99%                 |
+-----------------------+-----------------------+-----------------------+
|                       | 0.10 lb/MM Btu NO~x~  | \<0.01                |
+-----------------------+-----------------------+-----------------------+
|                       | 0.01 lb/MM Btu PM     | 0.002                 |
+-----------------------+-----------------------+-----------------------+
|                       | Hg "Co-benefits"      | 95%                   |
+-----------------------+-----------------------+-----------------------+
|                       | CO~2~ removal -- NA   | 90%                   |
+-----------------------+-----------------------+-----------------------+
| **By Product          | 30%                   | Near 100%             |
| Utilization**         |                       |                       |
+-----------------------+-----------------------+-----------------------+
|                       |                       |                       |
+-----------------------+-----------------------+-----------------------+
| **[PROCESS COST       |                       |                       |
| AND]{.underline}**    |                       |                       |
|                       |                       |                       |
| **[PERFORMANCE GOALS  |                       |                       |
| \*\*]{.underline}**   |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Efficiency (HHV)      | 38 - 40% \*           | 50 -- 60%             |
+-----------------------+-----------------------+-----------------------+
| Availability          | \>80%                 | \~90%                 |
+-----------------------+-----------------------+-----------------------+
| Capital Cost, \$/kW   | 1000 -- 1300          | 800 - 900             |
+-----------------------+-----------------------+-----------------------+
| Cost of Electricity,  | \$35                  | \<\$30                |
| \$/MWh                |                       |                       |
+-----------------------+-----------------------+-----------------------+

> \* At least 38 percent with 40 percent more likely dependent on coal
> type
>
> **\*\*** [These goals do not reflect cost and performance impacts of
> carbon capture and sequestration, which remains a major R&D
> goal.]{.underline}

**[The Roadmap and Carbon Capture]{.underline}**

These roadmap goals do not reflect the cost and performance impacts of
carbon capture and sequestration, which remain a major research and
development goal. Achieving the roadmap goals will reduce the carbon
intensity of coal-fueled electricity by increasing its generating
efficiency. As described in a recent National Coal Council Study.[^13]
if more substantial reductions are desired, it will be necessary to
develop economical technologies for the capture and storage of CO~2~.
These goals also assume continued research, development, and
demonstration funding at levels identified in the roadmap.

Current technologies for CO~2~ capture are too costly (capital and
operating costs) and energy-intensive for widespread commercial
application in power plants even before considering costs for carbon
sequestration (storage). New technologies such as membrane separation
and oxygen-based combustion are under development to reduce the cost and
energy penalties, but the development of capture technology depends on
the design of the generating system. For gasification-based systems,
CO~2~ can be removed ahead of the combustion turbine, affording
potential capital and operating cost advantages relative to
combustion-based systems. Membrane technology also may be attractive for
CO~2~ separation in gasification-based systems, and promising
technologies such as water hydrates, pressure swing adsorption, and
solid sorbents, are under investigation.

Once the carbon has been captured, regardless of the technology used,
the ultimate goal is to sequester, or permanently store, CO~2~ to
prevent its emission into the atmosphere. This is likely to be the most
challenging aspect of implementing a carbon management policy if society
determines it is needed. To a limited extent, the technology for carbon
sequestration is in commercial use. For example, CO~2~ is injected into
oil and gas formations to stimulate production. However, these are small
applications compared to volumes of CO~2~ that need to be sequestered
worldwide in order to reduce global emissions significantly. Large-scale
and long-term demonstrations of carbon sequestration technologies over a
geographically and geologically diverse range of candidate sequestration
sites are needed before making any policy decisions concerning carbon
management. The DOE\'s current program of Regional Carbon Sequestration
Partnerships is directed to identifying the opportunities and obstacles
to carbon sequestration throughout the United States. Similar
assessments need to be conducted internationally, and the DOE has
established the Carbon Sequestration Leadership Forum to organize global
activities.

The FutureGen Project is a presidential initiative to accelerate the
development of near-zero net emissions technology by building and
operating a prototype coal-fueled power plant of the future. The
FutureGen facility will be a gasification-based system capable of
capturing and storing one million tons-per-year of CO~2~ and producing
electricity and hydrogen with near-zero emissions of the conventional
pollutants. The FutureGen facility also will serve as a research
platform for the testing and scale-up of promising technologies, such as
new CO~2~ separation methods, as they emerge from the ongoing R&D and
CCPI demonstration programs.

**[Conclusions]{.underline}**

Dramatic and continuous reductions in emissions from coal-fueled
electricity generation using advanced technologies can be a reality. The
alternatives -- regulation through litigation, unbalanced policymaking,
and over-reliance on foreign energy sources -- threaten economic and
national security, and constrain our potential contributions to global
emissions reductions through our technological leadership. Industry and
government can and must agree on reasonable milestones that enable
significant environmental progress, greater investment certainty, energy
security, and the low-cost electricity that drives economic prosperity
and a better quality of life.

A portfolio of clean coal technologies, including advanced pulverized
coal and IGCC along with CO~2~ mitigation options (including geologic
and terrestrial/biologic sequestration) will be needed to achieve
ultra-low/ near-zero net emissions from coal-fueled power plants in the
near and long term. Achieving these technology goals will require a
commitment to continue coordinated investment by government and private
industry in all elements of research, development, demonstration, and
deployment of clean coal technology including carbon capture and storage
at levels consistent with those recommended in the industry/government
roadmap.

> **The Coal Based Generation Stakeholders Group**

The Coal-Based Generation Stakeholders Group is a diverse group of
investor-owned utilities, rural electric cooperatives, public power
companies, coal producers and coal-hauling railroads. The group believes
that the option to generate electricity from coal -- which remains
America's most abundant energy resource -- must be preserved and
enhanced because it strengthens our economy, ensures the generation of
affordable and reliable electricity, maintains a diverse fuel supply,
and provides secure jobs for American workers.

The members of the Coal-Based Generation Stakeholders Group believe that
continuous improvement in reducing emissions from coal-fueled plants
through the use of advanced technologies is not only desirable it is
necessary.

The electric Power, coal, and railroad industries have total revenues of
almost \$300 billion and directly employ almost 800 thousand workers.

**Coal Based Generation Stakeholders Group - Membership**

[Co-Chairs]{.underline}:

Mr. Irl Engelhardt Ms. Ruth Shaw

Chairman and CEO President and CEO

Peabody Energy Duke Power

701 Market Street 526 South Church Street

St. Louis, Mo. 63101 Charlotte, NC 28201

[Association Members:]{.underline}

Association of American Railroads Edison Electric Institute

50 F Street, N.W. 701 Pennsylvania Ave., N.W.

Washington, D.C. 20001 Washington, D.C. 20004

202-239-2100 202-508-5000

[www.aar.org](http://www.aar.org/) [www.eei.org](http://www.eei.org/)

Mr. Ed Hamberger, President & CEO Mr. Thomas Kuhn, President

Center for Energy and Economic Development National Mining Association

333 John Carlyle Street 101 Constitution Avenue, N.W.

Alexandria, Va. 22314 Washington, D.C. 20001

6292. 202-463-2625

[www.ceednet.org](http://www.ceednet.org/)
[www.nma.org](http://www.nma.org/)

Mr. Steve Miller, President Mr. Jack Gerard, President & CEO

National Rural Electric Cooperative Association

4301 Wilson Boulevard

Arlington, Va. 22203

703-907-5500 [www.nreca.org](http://www.nreca.org/) Mr. Glenn English,
Chief Executive Officer

ENDNOTES

[^1]: *Short Term Energy Outlook*, January 2005. Energy Information
    Administration, [www.eia.doe.gov](http://www.eia.doe.gov/).

[^2]: *Annual Energy Outlook 2005* -- Early Release, December 2004.
    Energy Information Administration.

[^3]: *World Energy Outlook, 2004*. International Energy Agency.

[^4]: *Annual Energy Outlook, 2005.*

[^5]: *Monthly Energy Review, December 2004*. Energy Information
    Administration.

[^6]: *Annual Energy Outlook*, 2005.

[^7]: The declining mercury emissions rate is based on EPA's assumed
    reductions as a co-benefit of SO2 and NOx reductions under
    implemention of the proposed Clean Air Interstate Rule (CAIR).

[^8]: Existing net summer capacity for electricity generators and
    independent power producers on January 1, 2004. This capacity does
    not include combined heat and power plants, or generating capacity
    used for commercial and industrial uses only. Source: EIA, Electric
    Power Annual 2003.

[^9]: *Annual Energy Outlook, 2005.*

[^10]: *Clean Coal Technolgies Roadmaps*, IEA Clean Coal Centre, October
    2003.

[^11]: FutureGen is a presidential initiative to build a facility that
    will produce electricity and hydrogen from coal with near zero
    emissions. The plant will include demonstration of carbon dioxide
    capture and sequestration.

[^12]: The roadmap is the product of a collaborative effort by the
    Department of Energy (DOE), the Coal Utilization Research Council
    (CURC), and the Electric Power Research Institute (EPRI). The
    roadmap, which can be found on the CURC ([www.coal.org)]() and DOE
    ([www.netl.doe.gov](http://www.netl.doe.gov/)) websites includes
    details on the specific technology advances, associated research,
    development and demonstration needs, and costs to achieve the
    proposed goals.

[^13]: *Coal Related Greenhouse Gas Emissions*, National Coal Council,
    May 2003.

    **Senate Energy and Natural Resources Committee**

    **Coal** **Conference**

    **Coal Utilization Research Council**

    ## Executive Summary

    Coal must be one part of a balanced portfolio of U.S. energy
    options. With more than 200 years of supply, at current rates of
    consumption, coal can be the foundation upon which our country is
    assured of a large, secure and inexpensive source of energy that is
    not prone to uncontrollable supply disruptions and thus continuously
    available to meet the demands of a growing U.S. economy. The
    continued and greater use of coal, however, must be achieved while
    protecting and conserving the air we breathe and the water we
    consume. Technology has played a key role in assuring that coal use
    will be accomplished efficiently, with least impact to the
    environment and at minimal cost to energy consumers. Indeed, since
    the 1970's as electricity demand has grown along with the use of
    coal to meet that demand, emissions from coal use have actually
    decreased. (See Figure 1 depicting technology application that
    played a key role in this dramatic decrease in emissions even while
    the use of coal increased dramatically).

    How do we best insure that our country's coal resources will
    continue to be used wisely while also protecting the environment and
    providing economical energy to consumers?

    The Coal Utilization Research Council (CURC) recommends that the
    Committee consider the following two recommendations:

    ***The adoption of an aggressive coal utilization RD&D program the
    primary goal of which is to develop, demonstrate and assist in the
    commercialization of highly efficient, near zero emissions energy
    plants capable of using all ranks of coal in all regions of the
    country***[.]{.underline} This goal already has been described in
    the Clean Coal Technology Roadmap, a working document -- agreed to
    by the CURC, the Department of Energy and EPRI, the electric power
    industry's research and development organization -- that describes a
    set of promising technology paths that need to be pursued
    simultaneously in order to develop and demonstrate a suite of
    technologies capable of very high conversion efficiencies, while
    preventing emissions or emitting near zero emissions. CURC has also
    defined a technology roadmap for CO~2~ capture and sequestration
    that the Committee is urged to consider. FutureGen represents one
    important path forward and is indicative of the type of system
    contemplated.

    ***Include in energy legislation under consideration a package of
    financial incentives designed to encourage the construction and
    installation and operation of a limited number of commercial-scale
    projects that employ either IGCC or advanced combustion-based
    technologies.*** Certain key clean coal technologies, notably
    integrated gasification combined cycle (IGCC) and advanced
    supercritical and ultra-supercritical direct combustion systems, are
    available for commercial-scale applications but the differential in
    cost between such advanced systems and conventional sub-critical
    pulverized coal systems is too great. As a result, while these
    advanced systems ultimately may prove to be more efficient in
    converting coal to useful energy and in achieving greater control of
    emissions, industry alone is unable to assume the greater costs and
    associated risks of constructing and operating the first set of
    pioneer facilities.

    **BACKGROUND and FOCUS OF THE CURC SUBMITTAL:**

    [Over the past three decades,]{.mark} coal has remained the dominant
    fuel of choice for electric power generation (335 gigawatts of
    currently installed coal fired generation capacity constituting 52
    percent of the electricity generated in 2003). According to the most
    recent EIA projections electricity growth is expected to continue in
    the United States well beyond the next decade and coal will be used
    to meet an even larger percentage of that new demand based in part
    upon the projected cost for natural gas (see: figure 2). As
    important, planned global electricity generation capacity increases
    are projected to reach 4,800 gigawatts of new generating plants by
    2030 and 1,400 gigawatts are expected to be new coal plants (source:
    International Energy Outlook & Platts Database).

    Since the 1970's, technology has been used to best insure that coal
    use can meet increasingly more stringent environmental policies. The
    challenge is to use this abundant domestic resource in a manner that
    meets our nation's environmental goals while preserving and
    enhancing our national energy security and providing low cost power
    and products for the American economy. The federal government's coal
    research, development and demonstration programs are central to
    assuring continued technology progress.

    **CURC Recommendation #1:**

    The electric utility industry and others are working with the
    Department of Energy (DOE) to develop the next generation of
    coal-based electric generation technologies through research and
    development (R&D) programs, the Clean Coal Power Initiative (CCPI)
    and the FutureGen project. These programs, jointly funded by
    industry and DOE, are designed to move promising technologies along
    the R&D path to full-scale commercial demonstration. Industry alone
    would be unable to take on the financial risks of demonstrating the
    technological advancements envisioned in these projects. A way to
    visualize the technology development path and the role of industry
    and government is depicted in Figures 3 and 4 at the end of this
    document. Technology is first developed in the laboratory, and then
    further developed at the pilot scale to full-scale demonstration
    levels. The costs of these activities are progressively greater as a
    technology matures from the laboratory, through pilot scale
    application, initial demonstration and then first of a kind
    application. In most cases, the government's financial contribution
    is highest during the early stages of technology development but as
    the technology matures and proceeds through the demonstration phase
    and beyond, the percentage of government contribution and
    involvement can be expected to be less. A technology is considered
    to be successful when it is used commercially. For a variety of
    reasons particularly in the cost conscious and now competitive
    electric generation industry, until a technology is at or near cost
    competitiveness with conventional technology, government assistance
    may be required to insure commercial use.

    To guide technology development the Department of Energy, EPRI and
    the CURC undertook a collaborative effort in early 2001 to agree
    upon the general elements of a coal technology roadmap (See
    [www.coal.org](http://www.coal.org/) for a copy of the roadmap). The
    roadmap is intended to serve as a guide to identify the type of
    technology development required, the estimated timeframes during
    which particular research and development should occur, and the
    likely dollar costs if an aggressive R&D program were pursued. The
    following charts depict the timeframes and goals when we might
    expect successful technology development programs to produce
    results.

    ###### Chart 1: DOE/CURC/EPRI Roadmap Environmental Performance Goals

     **New Plant** **Technology of Today\*20102020Air Emissions**98%
    SO~x~ removal99%\>99%0.10 lb/MM Btu NO~x~0.05\<0.01 0.01 lb/MM Btu
    PM0.0050.002Hg \"Co-benefits\"90%95%**Byproduct
    Utilization**30%50%Near 100%\*depicts levels achievable on
    bituminous, high Btu value coal, lower rank coals could be lower

    **Chart 2: DOE/CURC/EPRI Roadmap Process Cost and Performance
    Goals**

     **New Plant Technology of Today\*20102020Efficiency
    (HHV)**40%45-50%50-60%**Availability**\>80%\>85%\~90%**Capital Cost,
    \$/kW**1000-1300900-1000800-900**Cost of Electricity,
    \$/MWh**3530-32\<30\*depicts levels achievable on bituminous, high
    Btu value coal, lower rank coals could be lower

    The roadmap is a useful tool in identifying the criticality of any
    specific technology R&D project. Furthermore, Congress could use the
    roadmap or similar tools as a reference point from which to judge
    the direction and success of federal R&D expenditures. And, most
    important, the Committee is urged to join with industry in adopting
    a vision for coal -- now currently reflected in the DOE/CURC/EPRI
    Roadmap -- which looks to technology as a principal means to insure
    the long term use of coal in an environmentally acceptable manner
    and at least cost to the consumer (the roadmap is simply a tool to
    depict that vision).

    Several conclusions can be made about the DOE's current coal R&D
    program when analyzed against the recommendations made in the
    Roadmap.

    First, to achieve the level of performance from coal utilization
    facilities identified in the Roadmap and within the timeframes
    suggested, our level of public and private R&D funding is woefully
    inadequate (see Figure 5 that compares the level of funding provided
    to the DOE for certain key technology components versus the annual
    level of funding that the CURC Roadmap suggests is necessary to
    reach cost and emissions performance goals by the 2020 timeframe).

    Second, if we cannot provide the aggressive level of funding
    necessary to advance technology rapidly, due to budget constraints,
    etc. then it is critical that the limited funds available be
    targeted toward specific technologies. That is not always the case,
    as Congress, in particular, is prone to adding funds to certain
    projects that might assist a particular constituency but has little
    direct bearing upon supporting overall technology advancements
    needed.

    Third, the Roadmap specifically recommends that more than one
    approach to coal use be developed so as to insure that there are a
    variety of options available to future coal users. This is the
    reason why the CURC supports the development of both gasification
    and combustion-based systems. Not all coals will be able to
    cost-effectively use gasification-based systems, for example, and
    thus given the importance of coal to the national economy it is
    essential that a variety of technology options exist.

    **CURC Recommendation #2:**

    In addition to an aggressive research, development and demonstration
    program, the CURC also recommends to the Committee the adoption of
    an advanced coal-based technology deployment program designed to
    financially assist with the installation and operation of IGCC or
    other advanced combustion-based systems in new greenfield
    applications or retrofit and repowering applications at existing
    electric generating facilities. In addition, coal gasification
    technology can be used to supply synthesis gas to existing natural
    gas combined cycle units and thus, provide a means to convert
    underutilized or idled natural gas combined cycle (NGCC) units from
    scarce natural gas to coal. The deployment of an initial fleet of
    IGCC and other advanced coal combustion-based systems will enable
    the development of cost competitive electric generation options (by
    using coal) that achieve emissions performance characteristics
    nearly comparable to that attained by NGCC systems. IGCC technology
    is also capable of producing products other than electricity, such
    as fuels and chemicals, thereby allowing the chemical industry and
    others now reliant upon natural gas to use coal as an alternative
    feedstock.

    Numerous studies have concluded that the cost premiums, and
    associated first-of-a-kind risks, to construct and operate coal
    gasification systems to generate electricity (IGCC) are simply too
    great for regulated utilities or independent power producers to
    assume alone. An on-going analysis being conducted by EPRI is
    identifying these cost premiums and also examining the most
    effective forms of federal financial assistance that, if provided,
    would reduce or eliminate such cost differentials. Similar analyses
    have been conducted with respect to advanced supercritical and
    ultra-supercritical direct combustion systems. Based upon these
    analyses and nearly two years of research involving numerous CURC
    members as well as intense discussions with other industry
    stakeholders, CURC's members have agreed upon a recommended
    deployment program which, if enacted, we believe would provide a
    sufficient amount of assistance in order for potential project
    sponsors to undertake advanced coal based generation technology
    projects.

    Highlights of the proposed deployment program are:

    Total eligible megawatts (in the case of IGCC, multiple product
    plants, in addition to electricity generation, would be eligible) is
    10,000 megawatts.

    Of this total, 5000 megawatts would be available for IGCC
    applications, including the refueling of existing natural gas
    combined cycle units, and the other 5000 megawatts would be
    available for advanced direct combustion systems that would be
    required to meet efficiency standards not now achieved in the United
    States.

    All proposed projects would be required to meet aggressive emissions
    targets and a number of stringent eligibility requirements including
    approval by regulatory agencies of rates charged to electric
    customers or long-term power purchase agreements with creditworthy
    purchasers.

    Once certified, a project would then be eligible for any one of
    three forms of federal financial assistance.

    The program would operate for a limited period of time (ten years)
    and any one project would have a limited period of time during which
    to complete the project otherwise the federal incentive would no
    longer be available to the project.

    CONCLUSIONS:

    Successful development of clean coal technologies is likely to
    require some degree of government assistance during the course of a
    given technology's commercialization cycle. It is vital to the
    future of coal that technology remains an enabler to use this
    domestic energy resource. That can be accomplished best if the
    Committee seeks the commitment of government to a shared vision for
    development of a suite of technologies that will enable coal to be
    used cleanly and efficiently. Also, to accelerate the deployment of
    clean coal technologies, the Committee is urged to review and adopt
    the deployment program described in this statement.

    Please see attachment for Figures 1 through 5.

    **Senate Energy and Natural Resources Committee**

    **Coal** **Conference**

    **Electric Power Research Institute**

    Executive Summary

    Electric Power Research Institute (EPRI)

    The Electric Power Research Institute (EPRI) has been working for
    three decades to meet the challenge of using the nation's most
    abundant fossil fuel resource to generate power in a cost-effective
    and environmentally friendly manner. Over the last six years, we
    have worked with the U.S. Department of Energy (DOE) and the Coal
    Utilization Research Council (CURC) to develop a Coal Roadmap
    identifying the environmental and economic performance targets
    required from new coal-based technologies to achieve near-zero
    emissions by the year 2020. EPRI's analysis indicates that financial
    incentives will be needed to encourage early deployment of these
    technologies and enhance industry understanding of the associated
    risks. We believe that the best way to encourage this necessary
    deployment is through a joint effort by the private and public
    sectors.

    **[Discussion question #1: What technology improvements in coal use
    are most important to pursue?]{.underline}**

    EPRI analysis indicates that the future types of coal generation
    economically and operationally favored for differing U.S. coal types
    will vary depending on the coal composition. Now that over half of
    all coal burned in the U.S. is from lower-rank sources it is
    important to develop a portfolio of coal generation options to use
    all types of coal, a valuable national resource. EPRI's findings
    from studies carried out over the past several years indicate that
    gasification with CO~2~ capture may not be an economically preferred
    option for all coal types. The *CoalFleet* initiative will address
    three advanced coal technologies and evaluate the options for CO~2~
    control from these technologies, Integrated Gasification Combined
    Cycle (IGCC), Ultrasupercritical Pulverized Coal (USC PC), and
    Supercritical Circulating Fluidized-Bed Combustion (SC CFBC). Future
    options, such as oxygen-based combustions, may also be examined. A
    joint public and private program will be required.

    # [Discussion question #2: What financial and/or regulatory mechanisms are necessary to bring these technological improvements to market?]{.underline}

    The cost of electricity differential compared to conventional
    Pulverized Coal (PC) designs is expected to be around 10 to 20
    percent, \$5 to 10/MWh, so any financial incentive provided to
    encourage early deployment of an advanced technology may need to be
    of that magnitude. EPRI is in the process of analyzing a wide range
    of possible incentive structures: loan guarantees, direct Federal
    loans, cost sharing, investment tax credits, accelerated
    depreciation, production tax credits, and a new concept of
    availability insurance that is designed to address technical risk.
    Draft results should be available for March 10^th^.

    # [EPRI:]{.underline}

    # [Discussion question #2: What financial and/or regulatory mechanisms are necessary to bring these technological improvements to market?]{.underline}

    Prior to commercialization, the advanced coal-based power plants
    will have a higher cost of electricity than subcritical PC plants.
    However, as more plants are built it is likely that the price will
    fall as improvements are identified based on design and operating
    experience. The challenge is how to get the first plants built so
    that these evolutionary improvements can be realized and the
    financial risks for investors understood and minimized. The
    bell-shaped "learning" curve showing how capital costs for a
    technology vary with the developmental time line is presented in
    Appendix D. EPRI believes that the quickest way to get the nation
    over this cost hurdle is through a pubic-private development
    program.

    Incentives can encourage early deployment of new, higher-risk
    technology but they pose several complex questions. How can Federal
    and state governments provide incentives most effectively? What
    types of incentives will lower the cost and risk of a new technology
    to that associated with conventional technology? How will different
    incentives impact different types of companies? *CoalFleet* is
    developing an analysis of these issues.

    The cost of electricity differential compared to conventional PC
    designs is expected to be around 10 to 20 percent, \$5 to 10/MWh, so
    any financial incentive provided to encourage early deployment of an
    advanced technology may need to be of that magnitude. EPRI is in the
    process of analyzing a wide range of possible incentive structures:
    loan guarantees, direct Federal loans, cost sharing, investment tax
    credits, accelerated depreciation, production tax credits, and a new
    concept of availability insurance that is designed to address
    technical risk.

    Power producers operate under a range of financial circumstances,
    which means that not all companies will achieve the same benefit
    from a given incentive arrangement. For example, an investment tax
    credit benefits an investor-owned utility but not a publicly funded
    utility, which is tax exempt (unless the credits are traded).
    Consequently, financial incentives will be viewed differently by
    each class of company, and indeed by each individual company. EPRI
    is investigating the value that may be realized from the various
    incentives for three classes of companies: investor owned utilities,
    independent power producers, and public entities (e.g., state,
    Federal or municipal power generator who would be tax-exempt). We
    have not yet analyzed the impact of the various incentive types on
    the Federal budget but intend to do so to understand the relative
    cost of providing the incentives. The work carried out by
    *CoalFleet* in this area is a unique contribution to the advancement
    of coal-based power plants and will help understand what it will
    take to encourage their use.

    **[Background and additional information]{.underline}**

    The majority of the announcements for new coal-fired generating
    capacity are for conventional subcritical PC plants. The reasons are
    clear: they are the lowest-cost, lowest-risk option; they achieve
    high availability and capacity factors; their performance satisfies
    current environmental regulations; and the power industry is very
    familiar with their operating characteristics. However, as
    environmental regulations tighten the capital and operating costs of
    these traditional PC designs will increase. The cost of electricity
    will rise, and as electricity is a vital commodity in every day
    life, so too will the cost of living and the cost of doing business.

    For the economic benefit of the entire nation, new commercially
    viable, advanced coal-based power plant designs must be developed
    for future deployment to maintain electricity prices at their lowest
    possible level. This is especially true if CO~2~ emissions become
    regulated. Current evaluations show that incorporating CO~2~ capture
    and sequestration with a subcritical PC design will double the cost
    of electricity. An essential feature of the advanced designs will be
    their ability to capture and sequester CO~2~ at a far lower cost
    than conventional PC designs.

    However, the technology supporting these advanced power plant
    designs is still under development and must be accelerated if it is
    to be available commercially by year 2020 as proposed by the
    DOE/CURC/EPRI Roadmap. These advanced designs will not reach
    commercial maturity until they have been demonstrated in a
    representative working environment for sufficient time to clearly
    establish their operating performance characteristics. This means
    that the information required to design a demonstration unit must be
    made available by 2012. Meeting these deadlines will provide the
    U.S. with the means of generating low-cost electricity with
    near-zero emissions from a secure domestic source of energy.
    Completing this fast-track development program opens up the
    opportunity to supply advanced coal-based technologies to an
    energy-hungry world, benefiting the U.S. economy and the global
    environment.

    The fundamental objective of *CoalFleet* is to resolve the issues
    facing the deployment of advanced coal-based power plants and make
    them a prudent option for power producers at a time when
    environmental and economic pressures will be even greater than they
    are today. The ongoing program we are conducting consists of three
    elements.

    Element One is an evaluation of incentives to accelerate deployment
    of advanced coal-based power plants. It will also identify
    technical, regulatory, and procedural issues that must be addressed
    to reduce the time and cost of permitting these plants. Draft
    results could be provided to the Committee to assist in the
    evaluation of possible financial incentives.

    Element Two will develop standardized designs for advanced
    coal-based power plants. Such an approach is considered essential
    for reducing plant capital costs. We believe this will also reduce
    the time and cost to license and construct the next generation of
    plants.

    Element Three will develop a plan to augment and accelerate current
    technology research and development programs and to secure industry
    support for technology deployment.

    **[Concluding remarks]{.underline}**

    EPRI and its funders believe that if electricity prices are to
    remain competitive into the future, coal must remain part of the
    generation mix. This poses many challenges that we must meet as a
    nation. Environmental performance must be improved and steps taken
    to prepare for reductions in the release of CO~2~, the major
    greenhouse gas. This requires that technological improvements be
    identified and fully commercialized for deployment by 2020: daunting
    challenge, but one that must be faced given the importance of clean,
    low-cost electricity to society.

    Our proposal is that the Federal government, despite the economic
    circumstances currently facing the nation, must continue to finance
    coal research to secure our economic future. In addition the Federal
    government should consider incentives necessary to mitigate the
    financial risk associated with deploying the first advanced coal
    technology plants. Without such incentives, power producers will be
    dissuaded from deploying these technologies slowing greatly the
    progress of their development. Based on EPRI research findings our
    proposal suggests:

    Multiple technological options will be required to utilize
    effectively the variety of coal sources within the U.S. -- IGCC,
    Ultrasupercritical Pulverized Coal and Supercritical Circulating
    Fluidized-Bed Combustion, and other systems may all be needed.

    Accelerated deployment to commercialize these advanced coal
    technologies will require risk sharing and financial incentives. The
    benefits offered by the different incentives will vary with the
    power producer's type of organization.

    This Senate initiative is both welcomed and timely, as we believe
    that the content of the energy program needs comprehensive review.
    EPRI, with its wide range of involvement in advanced coal technology
    development, looks forward to working with the government to achieve
    this objective.

    **Senate Energy and Natural Resources Committee**

    **Coal** **Conference**

    **General Electric**

    GE Energy

    # [Executive Summary]{.underline}

    GE Energy is pleased to provide input for the Senate Energy and
    Natural Resources Committee's Future of Coal Conference. We will
    address three of the topics for discussion: 1. Coal
    Consumption/Scenarios for Coal-Fired Generation; 2. Environmental;
    and 3. Financial and Technological Improvements.

    With regard to scenarios for coal's future, we can choose a future
    in which coal moves forward in the cleanest manner possible with the
    environmental and efficiency benefits of IGCC. A resurgence of
    interest in coal-fired generation is underway. We are experiencing a
    high level of interest in IGCC for the next generation of coal
    plants. Conventional coal plants face well-known environmental
    challenges. Recent proposed coal projects have become lightning rods
    for environmental and public opposition. At best, years of delay are
    added to the projects. At worst, the project can be abandoned.
    Therefore, the coal generation scenario strongly depends on whether
    advanced coal technology will be ready for wide commercial
    deployment.

    Relative to environmental challenges, IGCC's performance is ready to
    take coal to the next level of performance. Conventional combustion
    coal plants are increasing in complexity and cost to meet
    ever-tightening environmental requirements. In addition to criteria
    pollutants and hazardous air pollutants (HAPS), there will be an
    increased focus on sustainability. In this context, IGCC requires
    less water, consumes fewer reagents, produces useable byproduct and
    avoids the large volumes of waste product that a combustion plant
    produces. Carbon is increasingly being considered as a factor that
    will impact new coal projects over their lifetime. Flexibility to
    capture carbon to address tomorrow's requirements while meeting
    today's performance needs is a key benefit that IGCC provides. If
    carbon constraints materialize, IGCC will have a fundamental
    advantage in providing a more economical solution for CO~2~ capture
    than end-of-pipe control.

    As to technological improvements, none are necessary for clean and
    efficient coal generation. IGCC technology is ready now. But what is
    urgently needed is the rapid deployment of IGCC at large commercial
    scale (500 MW or larger). This will provide the basis for IGCC to
    provide the references needed to support utility decisions to widely
    and beneficially employ IGCC. We therefore recommend a
    public/private partnership effort to provide financial assistance
    for the development of the initial engineering studies/design for
    the first-of-a-kind plant to foster the commercial deployment of
    advanced coal technologies.

    February 16, 2005

    Future of Coal Conference

    Response to Financial and Technological Improvements Topic for
    Discussion

    GE Energy

    **Financial and Technological Improvements:** *[What technological
    improvements in coal use are most important to pursue?]{.underline}*

    No technological improvements are necessary for clean and efficient
    coal generation.

    *IGCC technology is ready now.*

    The first-of-a-kind clean coal IGCC plants at Tampa and Indiana
    adequately demonstrated technical feasibility. However, these
    projects did not provide evidence of commercial readiness in terms
    of cost and availability. These plants were developed on the
    framework of 1990 design and technology -- now 14 years ago. The
    plants are small. The processes were poorly optimized and
    integrated. As first-of-a-kind, these plants were plagued with early
    component failures. They were developed by multiple and independent
    technology providers -- without a single company to act as an
    integrator in providing a complete commercial product. Although they
    served their role of demonstrating technical feasibility and
    commercial promise, they did not address any questions on commercial
    acceptability.

    What is urgently needed now is the rapid deployment of IGCC at large
    commercial scale (500 MW or larger). This will provide the basis for
    IGCC to provide reference plants that support utility decisions to
    widely and beneficially deploy IGCC. It should be recognized that
    IGCC and coal gasification are already providing many of the key
    features of FutureGen -- CO~2~ capture, hydrogen production and
    clean power. IGCC provides a fundamental advantage as a more
    economical solution for CO~2~ capture than conventional combustion
    plants.

    All the pieces for FutureGen are available in IGCC. These pieces
    need to be pulled together in an integrated, large scale
    demonstration project that shows cost effectiveness.

    What financial and/or regulatory mechanisms are necessary to bring
    these technological improvements to market?

    We are familiar with the many proposed incentives to bring advanced
    coal generation technology to market (Fig. 1). Potential
    participants in the deployment of advanced clean coal plants include
    regulated Investor-Owned Utilities, unregulated (merchant) arms of
    these IOUs, project developers, independent power producers, and
    municipal utilities. The proposed incentives vary widely in their
    impact on each of these various classes of participants that can
    deploy advanced coal plants, whose needs for assistance in the
    adoption of new coal technologies also vary widely. We strongly
    support a choice of incentives that will allow all of these
    stakeholders to participate in technology deployment. We also
    strongly recommend that these incentives should be used to close the
    temporary current gaps in cost and risk but should not carry
    significant restrictions or strings attached in the form of
    bureaucratic requirements.

    In the near term, a high priority should be placed on providing
    assistance to offset the project engineering development costs that
    are required to deliver the first commercial IGCC plant. Unlike
    natural gas, advanced coal plant designs require significant
    preliminary engineering development for first-of-a-kind (FOAK)
    plants. This is required by specific coal and site characteristics.
    These feasibility-engineering costs typically amount to \$12 million
    to \$15 million for each project. As advanced clean-coal experience
    grows, this up-front development engineering will be captured to
    provide designs for like-plants, as is currently done with
    conventional coal plants.

    Both customer and vendor project development structures are prepared
    to deal only with mature coal combustion technology. As a result,
    the up-front engineering cost is a significant barrier to the
    deployment of IGCC and other advanced coal technologies. We
    therefore recommend a public/private partnership effort to provide
    financial assistance for the development of the initial engineering
    studies/design for the first-of-a-kind plant to foster the
    commercial deployment of advanced coal technologies. This would
    relieve launch customers and early adopters of being differentially
    burdened with advancing this technology, which will ultimately lead
    to benefits throughout the industry.

    February 16, 2005

    ![](media/image4.png){width="4.999305555555556in"
    height="3.7493055555555554in"}

    Figure 1 Proposed Incentives for Advanced Clean Coal

    **Senate Energy and Natural Resources Committee**

    **Coal** **Conference**

    **National Association of Regulatory Utility Commissioners**

    "Future of Coal Conference"

    NARUC Summary

    The nation\'s energy policy should assure adequate, reasonably
    priced, reliable, safe, and environmentally sound electricity. Coal
    fuels a significant portion of the nation\'s electric

    power and is expected to do so for the foreseeable future. However,
    because of coal\'s air emissions, it is important that Congress and
    States work together to reduce such air emissions and encourage
    development of low polluting central station generation, including
    clean-coal technology.

    It is likely that coal, as an affordable and plentiful domestic
    resource, will play a significant role in electric generation over
    the next 20 years. Integrated Gasification Combined Cycle (IGGC)
    technology has the potential to become an increasingly significant
    portion of the nation's coal-fired fleet of electric generators.

    Support for clean coal technology, IGCC technology, and carbon
    sequestration should be part of a broad portfolio of solutions for
    our environmental challenges that should also include emphasis on
    conservation and other new technology advances in renewables.

    IGCC seems to be the most promising clean coal technology currently
    being examined by the U.S. electric industry.

    State energy and environmental officials can play an important role
    in creating incentives to improve the environmental performance of
    existing and future baseload electric generation facilities.

    To address the environmental impact of coal, Congress should address
    air emissions from all electric power generation in ways that:
    minimize adverse environmental impacts; are cost effective; rely, to
    the extent possible, on market-based trading mechanisms; and
    identify, to the extent possible, the net impact of resource
    decisions, including external factors, on public health, the
    environment and the economy.

    In order to assist States to voluntarily pursue IGCC or other clean
    coal technologies, NARUC supports federal action, taken in concert
    with States and other agencies to examine a portfolio of
    credit-based mechanisms that could be administered by DOE, such as
    (but not limited to): direct loans, loan guarantees, and lines of
    credit; tax incentives, such as (but not limited to) investment tax
    credits, production tax credits, and accelerated depreciation of
    capital assets; production incentives; public/private cost sharing;
    direct subsidies; and innovative rate treatment methodologies. 

    National Association of Regulatory Utility Commissioners (NARUC)

    **3. Financial and Technological Improvements:** What technological
    improvements in coal use are most important to pursue?  What
    financial and/or regulatory mechanisms are necessary to bring these
    technological improvements to market?

    *Technical Improvements*

    IGCC seems to be the most promising clean coal technology currently
    being examined by the U.S. electric industry. Several major energy
    corporations (including American Electric Power, Cinergy, First
    Energy, Consol, General Electric, Bechtel, and Southern Company)
    have recently expressed strong interest in building commercial IGCC
    power plants. The mounting interest in IGCC reflects a convergence
    of three changes in the electric utility marketplace:

    Recognition of the increasing maturity of gasification technology;

    Recognition of the extremely low environmental emissions, including
    mercury, from IGCC plus the potential for lower cost control of
    greenhouse gases than is available with other coal-based systems;
    and

    Recognition of the recent dramatic increase in the cost and
    volatility of natural gas as a fuel source.

    Carbon sequestration technologies can be integrated into the design
    of an IGCC facility to minimize future environmental compliance cost
    increases and efficiency losses potentially associated with carbon
    capture. The initial fleet of pioneer commercial plants now being
    discussed by the power industry will help lower capital costs and
    technology risks by moving the industry along the learning curve.
    However, the perceived principal barriers to commercialization of
    IGCC are cost, technology risk, and the need for design changes to
    assure adaptability to a carbon constrained world.

    An array of combustion and post-combustion technologies such as low
    nitrogen oxide (NOx) burners and wet sulfur dioxide (SO2) scrubbers
    may assist in emission control requirements. The generation of power
    systems such as pressurized fluidized bed combustion (FBC), IGCC,
    and advanced pulverized coal combustion systems promise improvements
    in efficiency and environmental protection. State energy and
    environmental officials can play an important role in creating
    incentives to improve the environmental performance of existing and
    future baseload electric generation facilities.

    As with any promising technology, it is appropriate for the
    government to take action to facilitate use of that technology,
    subject to the understanding that any incentives intended to achieve
    that result should be temporary in nature in order to avoid putting
    governmental officials in the position of choosing technological
    winners and losers.

    *Regulatory Mechanisms*

    It is appropriate to look at the existing regulation structure to
    examine if the tools are in place to facilitate the construction of
    large baseload IGCC units. State regulatory commissions have in
    place varying statutes to approve and site new power plants. NARUC
    conferences have examined, on a national scale, policies to assist
    State commissions in this process. We understand developers need
    assurances of cost recovery, whether that be in State regulated
    processes or in the State's partnerships in monitoring a fair and
    transparent market that will accept all entrants in an objective
    manner. States have long used a resource planning process with the
    utilities we regulate. Today that process continues and in some
    regions of the country has expanded to include working with the
    Regional Transmission Organizations (RTO) planning role.

    Ultimately, NARUC encourages States to examine IGCC technology as a
    means to mitigate natural gas price levels and volatility by
    creating economic alternatives to natural gas-fired electric
    generation. NARUC supports the development of voluntary State
    incentives to encourage the commercial development of IGCC
    facilities in concert with Federal deployment efforts.

    The States are in the position to help manage the financial risk of
    deploying IGCC by considering a variety of regulatory and
    legislative policy actions including:

    Cost recovery assurances for IGCC projects

    Expedited cost recovery for IGCC projects

    Accelerated depreciation of clean coal technology assets

    IGCC production tax credits

    IGCC State-based financing

    IGCC environmental trust financing

    *Financial Mechanisms*

    In March, 2004, DOE/NARUC Partnership for Clean Coal and Carbon
    Sequestration

    Technologies released a report, entitled "*An Analysis of the
    Institutional Challenges to*

    *Commercialization and Deployment of IGCC in the U.S. Electric
    Industry: Recommended Policy, Regulatory, Executive and Legislative
    Initiatives."* The study acknowledges that IGCC technology is
    already being utilized successfully, and that accelerated IGCC
    deployment could provide critical economic, environmental, and
    technological benefits. Existing commercial size IGCC power plants
    produce substantially lower levels of pollutants and wastes than
    conventional coal-fueled units. Further, much of the solid waste
    material produced by IGCC units is commercially salable, thereby
    reducing or largely obviating waste disposal costs. While pollutants
    from

    combustion-based units other than IGCC facilities can be reduced by
    newer technologies, retrofitting such plants to address each of
    these emissions in a piecemeal manner may cost considerably more
    than repowering them with IGCC technology, depending upon the age
    and size of the plants and their current levels of performance.

    In order to assist States to voluntarily pursue IGCC or other clean
    coal technologies, NARUC supports federal action, taken in concert
    with States and other agencies to examine a portfolio of
    credit-based mechanisms that could be administered by DOE, such as
    (but not limited to):

    Direct loans, loan guarantees, and lines of credit;

    Tax incentives, such as (but not limited to) investment tax credits,
    production tax credits, and accelerated depreciation of capital
    assets;

    Production incentives;

    Public/private cost sharing;

    Direct subsidies; and

    Innovative rate treatment methodologies. 

    Such tools, applied to co-manage specific risks, should be
    cost-effective and used in conjunction with the expedited deployment
    of an initial fleet of IGCC plants to help overcome the costs and
    other obstacles of early adoption.

    **Senate Energy and Natural Resources Committee**

    **Coal** **Conference**

    **William Rosenburg-Harvard University**

    **EXECUTIVE SUMMARY**

    The future of coal in the U.S. is inextricably linked to the future
    deployment of technologies that address environmental concerns
    raised by coal combustion. Deployment of advanced technologies that
    reconcile coal use and environmental protection will enable the
    nation to enjoy the energy, economic, and security benefits of
    expanded coal use without adversely affecting human health and the
    environment.

    Coal gasification, which refines coal into synthesis gas and removes
    impurities prior to combustion, minimizes air pollutant emissions,
    water consumption, and sold waste production associated with coal
    use and provides a technical pathway for separating, capturing and
    storing carbon dioxide (CO~2~) emissions. The U.S. Department of
    Energy (DOE) has invested billions of dollars to support research,
    development, and demonstration of gasification and IGCC technologies
    to bring them to commercial readiness. The U.S. should accelerate
    real time commercial deployment and investment in a fleet of IGCC
    and industrial gasification plants through a National Gasification
    Strategy to preserve industrial jobs (being lost due to high natural
    gas prices), refuel underutilized natural gas combined cycle power
    plants, and provide secure, reliable, and clean coal power to serve
    the nation's growing economy. The sooner gasification of abundant
    coal and biomass is operational, the sooner massive reliance on LNG
    imports and natural gas prices are moderated.

    Early deployment of gasification requires federal incentives to
    overcome higher capital costs, technology risks, and financial
    market skepticism inhibiting investment and to encourage cost
    recovery approval by state public utility commissions. The federal
    government can stimulate deployment at low federal cost by providing
    loan guarantees for gasification investments, similar to those
    provided to support Alaska Gas Pipeline construction and
    transportation infrastructure. Loan guarantees reduce coal
    gasification electricity from about 5.5 cents/kWh to 4.2 cents/kWh,
    which is lower than the cost of new PC power. For industrial plants,
    synthesis gas can be produced for about \$4.3/mmBtu in a \$6.0/mmBtu
    natural gas market.

    Comparing budget impact, loan guarantees cost the government about
    80% less than investment tax credits, grants, and accelerated
    depreciation to achieve the same economic benefit for the projects.
    The lower cost of loan guarantees enables federal funds to support a
    larger gasification program to save jobs and lower natural gas and
    electricity costs---the National Gasification Strategy produces the
    equivalent of 1.5 TCF of natural gas. The federal government risk
    can be significantly reduced by requiring assured revenue streams
    (from state utility commission determinations or creditworthy
    off-take agreements) as a condition of qualification. With credit
    support, the loans are differentiated from the Synfuels Corporation,
    which put project and credit risks on the federal government.

    It is possible to allow developers to chose from a menu of loan
    guarantees and tax incentives, so long as the selection criteria
    takes into account the cost to the federal government of each
    package. This will ensure projects with the least budget cost are
    selected.

    **Senate Committee on Energy & Natural Resources**

    **Future of Coal Conference**

    **Submitter's Name:** William G. Rosenberg/ John F. Kennedy School
    of Government

    **Contact:** William G. Rosenberg

    **Email:** [william_rosenberg@ksg.harvard.edu]{.underline}

    **Phone:** 919-601-0563

    **Question 3. Financial and Technological Improvements:** *What
    technological improvements in coal use are most important to pursue?
    What financial and/or regulatory mechanisms are necessary to bring
    these technological improvements to market?*

    Commercial deployment of coal gasification technology that
    reconciles coal use and environmental protection, including progress
    in addressing carbon dioxide (CO~2~) emissions, should be pursued as
    a national priority. Federal loan guarantees that require specific
    credit enhancements for qualification, offer a low federal budget
    cost mechanism to stimulate coal gasification investments to
    preserve domestic industrial jobs, refuel underutilized natural gas
    combined cycle (NGCC) power plants, and provide secure, reliable,
    and clean coal power to serve the nation's growing economy.

    Coal gasification technologies, including integrated gasification
    combined cycle (IGCC) electricity generation, are commercially ready
    and offer a paradigm shift in the use of coal---refinement of coal
    into a clean fuel prior to combustion, rather than direct combustion
    of coal and its impurities. Gasification technology minimizes air
    pollutant emissions, water consumption, and solid waste production
    and provides a foundation for separating, capturing, and storing
    CO~2~ at lower cost than can be achieved with direct coal
    combustion. Synthesis gas manufactured in the gasification process
    can be substituted for natural gas and reduce natural gas and
    electricity prices. It also can produce pure hydrogen from coal for
    use in fuel cell technologies, produce heat, steam, and process fuel
    for industrial applications, and/or produce high value liquid fuels.

    Research conducted in 2004 at the Kennedy School of Government^?^
    identified market conditions inhibiting investment in IGCC
    technology and proposed a cost minimizing approach for the federal
    government to stimulate near-term deployment. The recommended
    approach is to provide credit enhanced federal loan
    guarantees---structured to minimize federal government exposure to
    project risks---that address gasification deployment hurdles with
    low budget "scoring" by:

    Insulating the federal guarantor from default risk;

    Providing federal credit to projects to significantly reduce capital
    costs; and

    Ensuring developers access to low-cost capital for 80% of project
    costs.

    **Why Gasification Technology Deployment?**

    [Energy independence and security]{.underline} \-- The Department of
    Energy (DOE) has invested billions of dollars over the last 20 years
    to support research, development, and demonstration of gasification
    technology, which has helped bring it to a state of commercial
    readiness. Gasification technology provides for expanded use of
    domestic coal, both for electric generation and industrial
    processes, without adverse environmental consequences. The U.S. has
    more coal than any other country in the world with estimated
    recoverable reserves of 275 billion tons---approximately 25% of
    world supplies and more than a 250-year supply at current
    consumption. Domestic coal, which is geographically dispersed across
    the country, transported by rail and barge, and can be stockpiled
    for 30-90 days on-site, is our most secure, reliable, and affordable
    fossil energy resource.

    [Industrial Jobs]{.underline}\--High natural gas prices are
    seriously undermining the economic competitiveness of many U.S.
    industries. The chemical industry estimates it has lost \$50 billion
    in business to foreign competition and more than 90,000 jobs since
    2000 due to high natural gas prices. Similarly, the fertilizer
    industry reported in 2003 that 11 ammonia plants representing 21% of
    U.S. capacity had already been closed, that only 50% of the
    remaining U.S. capacity was operating, and that two major U.S.
    fertilizer producers had filed for bankruptcy. Incentives for
    commercial gasification deployment will give these and other
    industries the option to invest in the U.S. rather than move
    production and jobs overseas.

    [Natural gas markets]{.underline}\-- Gas supplies in the U.S. can be
    significantly enhanced by manufacturing gas using commercially
    available gasification technologies. Gas supply from gasification
    could begin to come on-line in 5-7 years, providing a mid-term
    supply bridge to Alaska Gas Pipeline completion. Gasification would
    also relieve pressure on natural gas pipeline
    infrastructure---manufactured gas would be produced and used on
    site, rather than piped hundreds of miles. Refueling of existing,
    underutilized natural gas combined cycle power plants with coal
    gasification could provide an immediate and permanent reduction in
    natural gas demand from the fast growing electric sector. Loan
    guarantees or other incentives would make significant gasification
    investment attractive and feasible across the country.

    [Air quality]{.underline}\-- The environmental concerns associated
    with coal-fired power plants are well documented and a significant
    factor that stands in the way of new pulverized coal (PC) power
    plant permitting and construction. The emissions performance of the
    current generation of IGCC power plants is better than the
    performance of the cleanest PC technology. For example, IGCC power
    plants have the potential to cost-effectively achieve very high
    (95-99%) mercury control with established technology, while no such
    technology exists for PC boilers. Future generations of IGCC plants
    will be even cleaner and more efficient.

    [Climate change]{.underline}---Gasification technology is capable of
    separating and capturing CO~2~ emissions at significantly lower cost
    than direct coal combustion technologies through the addition of
    shift reactors and physical absorption processes. These processes
    are commercially proven in industrial applications and cost about
    half of what carbon capture is estimated to cost for PC. Near-term
    deployment of technology capable of addressing CO~2~ emissions is
    critical to avoid locking in traditional steam coal technology for
    the 30 to 50 year life of new coal plants. Gasification technology
    is also able to produce pure hydrogen streams than can be used in
    fuel cell technologies to achieve near zero emissions electricity
    generation or vehicles.

    **Need for Gasification Incentives**

    Accelerating near-term investment in gasification technology
    requires overcoming higher capital costs (20% at the current state
    of the technology), new technology risks, and skeptical financial
    markets (tainted by failed investments in nuclear and natural gas
    generation). A 2003 decision by the Wisconsin Public Service
    Commission to approve a WEPCO proposal to build two PC power plants,
    but reject the company's proposed IGCC facility, illustrates the
    problem facing commercialization of gasification technology. In
    Wisconsin, the commission determined that "IGCC technology, while
    promising, is still expensive and requires more maturation. For
    these reasons, the application to construct the IGCC unit is
    denied."^?^ In order for gasification technology to become
    commercially mature and economic it needs to be deployed, but in
    order for it to be deployed, gasification needs to be perceived as
    mature and economic by developers, financial institutions, and
    regulators. We recommend the federal government help resolve this
    dilemma through a National Gasification Strategy that provides
    federal credit assistance (or other incentives) to facilitate
    deployment of IGCC and industrial gasification facilities as a
    national energy policy priority.

    As discussed below, loan guarantees are the recommended incentive
    approach because they can minimize federal costs while providing
    significant project benefits. It would be possible, as an
    alternative, to allow developers to chose from a menu of loan
    guarantees and tax incentives so long as the selection criteria
    takes into account the cost to the federal government of each
    package (see discussion below). This will ensure projects with the
    least budget cost are selected.

    Federal loan guarantees improve project economics by substantially
    lowering capital costs. With loan guarantees, debt investors focus
    primarily on the federal guarantee to secure their investment rather
    than project economics and risks. Federally backed debt typically
    costs about 100 basis points less than mid-grade utility debt (5.5%
    versus 6.5%), making it an attractive source of capital for
    developers. The federal guarantee also enables key terms of the debt
    to be established by the federal guarantor, including that the
    guaranteed debt can be available for up to 80% of the total
    investment, which allows for a high debt/equity ratio (based on the
    Alaskan Gas Pipeline financial model). The high leverage and
    low-cost debt provides significant savings to the project and (in
    the case of regulated utilities) the ratepayers.

    Important for stimulating IGCC and industrial gasification is
    ensuring the incentives make gasification a competitive alternative.
    The capital costs of current generation IGCC power plants are about
    20% higher and less certain that the cost of new PC plants. These
    higher capital costs result in higher energy costs that make IGCC
    technology less attractive than PC. Figure 1 illustrates typical
    energy costs of new Super Critical PC (SCPC), NGCC and IGCC power
    plants and how 80% federal loan guarantees can significantly reduce
    IGCC capital cost, making IGCC a competitive alternative.

    Industrial facilities interested in gasification face a similar
    economic challenge. Construction of large coal gasification facility
    requires a capital investment of \$350 million to over \$1 billion,
    depending on the size of the facility.