Can Coal Be Clean? The Promise of Climate Change Technology

Rush Transcript; Federal News Service

Speakers:

• Ernest J. Moniz, Cecil and Ida Green Professor of Physics and Engineering Systems, MIT, and Driector, MIT Energy Initiative
• Rick Boucher, U.S. Representative (D-VA)

Moderator:

• Michael A. Levi, Senior Fellow for Science and Technology and Director, Program on Energy Security and Climate Change, Council on Foreign Relations

Council on Foreign Relations - September 17, 2007

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Council on Foreign Relations, Washington D.C. - September 18, 2007

MICHAEL LEVI:  Good morning.  Welcome to the Council on Foreign Relations meeting on coal -- and on clean coal and how it fits into the climate change debate.

Let me run through a few quick bits of housekeeping before we get on to business.  If you could please turn off your cell phones, Blackberries, or anything else.  I'd also like to remind you that this meeting is on the record -- I should turn off my own probably.  (Laughter.)  Sort of lead by example here. 

We're delighted to have two fantastic guests here this morning.  Ernie Moniz is a professor of Physics at MIT, and co-chaired the recent MIT report, "The Future of Coal," which I believe he has next to him.  It's absolutely fantastic.  I recommend it to anyone.  You can look at it online.  He was also undersecretary of Energy during the Clinton administration. 

Congressman Rick Boucher is serving his 13th term representing Virginia's 9th District.  He's chairman of the House Energy and Commerce Committee's Subcommittee on Energy and Air Quality, where he's one of the key players in developing policy on climate change. 

So let's get right to it.  Let's set things up.  Congressman, where are things on The Hill right now when it comes to climate change? 

REPRESENTATIVE RICK BOUCHER:  Well, the first thing that I hope that we can do is publish a series of position papers in our Subcommittee on Energy and Air Quality.  As these are constructed, you will see them arrive on the website of the House Energy and Commerce Committee.  The first of these may actually appear as early as this week.  I'm meeting with staff later this afternoon to assess our progress in preparing that.

It's our goal to have the entire series of position papers on the various issues relating to our agenda for climate change published and be available for comment within the course of about the coming six weeks.  After that is done, and we've had an opportunity to receive comment on these matters, we will turn our attention to writing a bill.  It will be mandatory in nature.  It will be economy-wide in scope, not limited just to stationary sources as some of the previous bills that address emissions trading and a cap-and-trade program are so limited -- and as, in fact, the European Union's emissions trading program is limited, that is only stationary sources. 

We intend to be more ambitious, and we will apply our cap-and-trade, our emissions trading across the economy and include transportation as well as the stationary sources.  The goal will be to draft that bill, to have it be subjected to legislative hearings, and to have mark-ups -- subcommittee and full committee, during the course of this fall.

Now I said that's our goal.  And I want to be very clear that we may not be able to meet it.  And here are some of the problems that stand in the way.  It is less a lack of political will -- or the ability to structure a bill for which I think we can achieve broad support that stands in the way, than it is the press of other business.  And that "other business" is the start of a conference between the House and the Senate on the two energy bills that have been passed, House and Senate, during the course of this year.  The Senate passed a bill in July, we passed our version on the House floor in August.  And the speaker, and I think the majority leader in the Senate, are both very determined to move forward quickly on a conference on these two measures. 

The very members and the very staff on our committee who would be required to take part in structuring the position papers that I have mentioned -- to take part in writing the legislation I've described, will be the same people who will have to take part in the conference with the Senate.  And since that will be the business at hand, we will simply have to attend to it. 

I might add that I had recommended previously to the speaker that it might be a better course to not undertake the conference with the Senate on the energy bills that we passed in the summer until we have had an opportunity in our committee to structure a cap-and-trade measure; to bring to the House floor an emissions trading item of legislation for the United States; to pass it in the House, and then add that to the previously-passed bills for purposes of conducting a conference with the Senate. 

I can imagine one conference on a comprehensive energy bill being successful and coming to conclusion during the course of this Congress, it's hard for me to imagine that, given the fact that next year is a presidential election year, we can actually conference two major bills dealing with energy issues and bring those successfully to conclusion by the end of 2008.  That is a very tall order, indeed.  I think her decision is going to be to go forward with a conference at the present time.  So that's the state of play in terms of what we intend to do. 

Let me take just a moment to -- if I have the liberty to do it -- to give you a sense of the parameters of the cap-and-trade bill that we're considering, and just state a couple of ideas about provisions that you can look for as this measure emerges from our committee.  To begin that, let me just say a little bit of word of introduction about myself, and where I come from, and perhaps that will be informative for you given the fact that one of our conversations this morning will be how coal factors into the equation on climate change. 

I've been in Congress now 25 years.  I represent the western part of the State of Virginia.  All of Virginia's coal industry is situated in my congressional district.  Not surprisingly, I have been, heretofore, a skeptic about the need for a mandatory response to the challenge of climate change.  I, frankly, did not think that the state of the science justified a mandatory action on the part of the Congress.  And I had been persuaded, heretofore, that the voluntary steps that were being undertaken by companies with R&D funding and other urging by the federal government, but something short of a requirement, was satisfactory.

My view has now changed.  And it has changed for a number of reasons.  First of all, the scientific opinion around the world is now deeply solidified about the reality of the human contribution to rising global temperatures.  With a 90 percent of certainty, thousands of scientists collected under the United Nations' umbrella of the International Panel on Climate Change have now issued a series of reports pointing to the extent of the human contribution, and also talking about the dire consequences for the world unless affirmative steps are taken to address this challenge.  And so, in my view, the science is now beyond debate and we have an obligation to respond affirmatively in the United States to this challenge. 

Another reason that my view, and I think the view of others, has changed is that the Supreme Court in the Spring of this year issued a decision which effectively says the following:  That CO2 is a pollutant; that the Environmental Protection Agency, therefore, has authority to regulate CO2 emissions; and that, unless the Agency finds that CO2 emissions are not a threat to human health and the environment, the EPA has a requirement to regulate for CO2.  In saying CO2, I should be more expansive and say greenhouse gases generally, but now we clearly see that the EPA is probably going to be required by law to issue its own regulations with respect to greenhouse gas emissions. 

It's hard for me, for example, to believe that, given the Supreme Court's very clear directives on this subject, that a finding at this point by the EPA that greenhouse gas emissions are not a threat to human health and the environment could sustain Supreme Court review.  And so it's pretty clear that the EPA is going to regulate if we don't.  Given that, I think it's far better that the people with the election certificates -- those of us who have a responsibility for weighing a broad range of factors and coming to a reasonable position, be the ones who write these rules.  So the time really has come to legislate. 

I might also mention that business is moving forward very rapidly in order to urge Congress to act and to act quickly.  Business needs certainty.  The sooner these rules are adopted and put into law, the sooner we're going to see the long-term investments made in low-emitting technologies, and business understands that very well.  So a very broad range of businesses from the emitting sectors are now coming to the Congress and saying that the time to act has arrived. 

Just a few words about what our legislation is likely to be.  I've mentioned that it will be economy-wide.  This measure must be bipartisan in nature to be successful, and I have a good relationship on this subject, with extensive conversations on an on-going basis, with the ranking Republican member of the subcommittee I chair whose name is Dennis Hastert, a name perhaps known to many here. 

Dennis has worked with me very closely in order to create a methodology by which we can achieve this success, and I want to acknowledge today the tremendous contribution that he's making to this process.  For example, he and I together led a delegation of six members of our committee to Europe in the Spring of this year, during which we examined in depth the experience of the European Union with emissions trading.  We think we understand thoroughly the nature of that experience.  We understand what went well with it.  We understand what the problems were and how we can avoid those here in the U.S.  And generally, in a bipartisan way, we will be moving forward to structure this legislation.

It's important that no sector of the economy be dislocated, and we will ensure that, while there will be a burden to all sectors to some extent -- to all emitting sectors, that that burden is fairly shared and that the costs that will be borne by our society, at the end of the day, is at the retail level, an increased price for energy.  And even that increased price for energy needs to be a sustainable increase.  And that is something within single digits. 

We also have to have provisions assuring international participation.  And we will have that -- and I know Michael wants to have a little separate conversation on that at a future point in this discussion, I'll defer that until then.  And I would add that we will have a very aggressive target for long-term reductions.  In my mind now is a target of 80 percent below current emissions levels by the year 2050.  The schedule that takes us to that fairly aggressive target will be perhaps the most difficult thing that we have to negotiate as this bill is written. 

And that schedule has got to acknowledge something very important.  And at long last, that brings me to the topic of today's conversation.  And that is the need to acknowledge the role of coal in our long-term energy future.  And I say this not just from the perspective of someone who represents a coal-producing district -- obviously coal is important in my district, but I am saying today, from the vantage point of a national interest, that we need to acknowledge the need for coal to play a continuing role. 

Fifty-one percent of the electricity generated in this country today is generated from coal combustion.  Coal is the fuel that we have; we have a 250-year supply.  Alternatives to coal simply are not available in sufficient quantity to meet our long-term needs.  Natural gas is not in sufficient supply today even to serve current demand in the United States.  We're having to import a lot, and will be importing more as time goes on.

Renewables, while promising to some extent, are only found in some parts of the country.  In the Southeast, we simply don't have solar and wind resources -- those are the two that are the nearest to market commercialization.  And so we simply could not rely upon renewables, at least in the short-term, to fill the gap should electric utilities not be able to continue to use coal because of government regulation.

If electric utilities are in some way disabled from continuing to use coal, their default position will be to go to the next least-expensive fuel, which happens to be natural gas.  And natural gas prices today are multiples of what they were just about three or four years ago.  It's about $8 a million BTUs now.  It was $2 a million BTUs in 1992-1993.   And the reason that we've seen that fourfold increase in natural gas prices during that fairly compressed timeframe is because electric utilities have begun to rely to such a great extent on natural gas for base-load generation.

And if electric utilities are, in some fashion, disabled from continuing to use coal because of climate change controls, they will default to an even greater degree to natural gas and you'll see those prices go to multiples of what they are today.  If that happens, there is a broad-based, adverse national economic effect.  Half of all homeowners heat with natural gas.  There is a broad range of American industry that is natural gas dependent -- from farming, to aluminum smelting, to chemical manufacturing and other industries that are completely natural gas dependent, and so we would see a deep, adverse, American economic effect if electric utilities are forced to default from coal to natural gas. 

So it's critically important that carbon capture and storage be accelerated, that we have that available at the earliest possible time.  The separation technologies are almost at the commercial stage now, there are several of them competing for commercialization.  The storage technologies are a different matter, and those are estimated to be many years away -- perhaps it will be 2020 or 2025 before they're available and affordable on a widespread basis.  And so, until that point in time, we need to be very sensitive about the need to allow electric utilities to continue to use coal, and our implementation schedule for greenhouse gas controls will have to acknowledge that reality. 

I have talked a lot longer than I intended to at this -- at the outset, but you asked me for the state of play -- (laughter) -- and there it is. 

LEVI:  It's a complex subject and it is difficult --

BOUCHER:  And it's a complex subject.  So thank you. 

LEVI:  -- to draw together.  But let's turn -- I think we've set things up just right, because I'd like to turn to the technology, and particular to carbon capture, storage and sequestration which was the focus of the MIT report.

What's the state of the technology now?  Where are we going?  What are the -- what do those timelines look like? 

ERNEST MONIZ:  Okay, well first I think we should get some context.  Number one, 40 percent of global CO2 emissions are from coal, so that gives you a scale of the challenge.  And also -- and I agree with Congressman Boucher that coal use will continue.  It will increase almost certainly when one -- certainly when one looks at the global picture.  So the issue is how do we manage this approach to climate risk mitigation while coal remains, and even grows, as an energy source?

On the technology side, there are -- I'm sorry for this echo here -- but there are a number of things which one should keep in mind.  First of all, not often emphasized, just the simple efficiency of coal combustion plants has risen dramatically and has considerable upside.  When you think about the installed fleet in the United States, and certainly in China, et cetera, let's say one's talking low 30s for efficiency, we can do today 40, 42 -- on the way to 45, 48 within a decade.  That's a non-trivial reduction, of course, in terms of all kinds of emissions and in terms of coal use. 

Nevertheless, if you want to make a big impact on that 40 percent, then we have to turn to the issues of carbon capture and sequestration.  I would say that today -- I would just use slightly different words from Congressman Boucher -- today large-scale carbon capture is a commercially viable technology, it's just that with today's technology it costs a lot.  And so really the approach is here, how can we reduce the cost of carbon capture to make it more -- a more competitive technology?  The way you should think about it is if you use today's technology to capture from a coal combustion plant, you knock 10 percentage points off the efficiency.  That's a lot fewer kilowatt hours for your coal input, and it's very, very expensive.

So as we look forward, how do we get the costs down?  There are basically two approaches.  One is, in fact, to improve the technologies for capturing CO2 from flue gas.  There are ammonia processes, a number of ideas -- none of which are ready for prime-time, frankly.  The other approach is to ease the challenge by combusting, or converting coal in an oxygen atmosphere.  And that can be combustion and oxygen -- or what you've probably heard a lot more about -- gasification.  These technologies hold the promise of reduced cost of carbon capture from coal use, however, there has been no single demonstration anywhere in the world of integrated coal combustion, or conversion with carbon capture.  So this is a challenge that is decadal in its realization. 

Then, of course, we turn to the sequestration -- the issue of injecting into the subsurface, large amounts of carbon dioxide.  There's some mythology and some truth in the confused discussions about where we stand in sequestration.  First of all, it's always good to get the mind focused by talking about numbers, scale.  A conventional utility scale plant -- let's say 500 megawatts, will produce the order of three million tons per year of carbon dioxide.  To make a material impact on climate risk mitigation -- say, out to mid-century, we must be talking about several billion tons of carbon dioxide per year, captured and injected into the ground.  There is no law of physics that prevents this, but we do have quite some effort in front of us to manage carbon sequestration at this very large scale. 

Secondly, if we look at today's understanding of the science, it's actually quite encouraging.  That is, nominally, we appear to have the capacity in deep salty aquifers, and the science of containment looks very encouraging.  We would say there is, essentially, zero risk of starting now and injecting at megaton-scale per year in sensibly characterized sites. 

But there is another issue, and that is the large-scale cumulative injection over many years at a site.  Indeed, one of those utility-scale plants, in its 50-year lifetime, would require injection of 1 (billion) to 2 billion barrels of compressed CO2.  It's a non-trivial reservoir, and when you begin to think about it, we're talking about, you know, the Schlumberges of the world as needed to manage those reservoirs over a long time. 

So what we need to do right now is to launch the program that, over a decade or so, can answer these questions.  Do we have such a program in the United States or in the world today?  No.  To be perfectly honest, we are doing virtually nothing right now that will answer the question of large-scale sequestration, cumulatively sustained over time, and we need to change our paradigm for how we structure and advance such programs.  Frankly, funding isn't the issue.  For a few billion dollars over 10 years, we could manage the U.S. program.  It's a question of organizing the program and implementing it appropriately.  That remains a big challenge.

Finally, I would add, in addition to the scientific questions that need to be addressed for large cumulative injection, there is an equally difficult challenge of thinking through the massive infrastructure required for gigatons of carbon dioxide sequestration, and for implementing a regulatory regime to guide the process.  Today we have no such regime, and it is -- it goes without saying that there is no way the private sector is going to start injecting these amounts of carbon dioxide without a serious resolution of regulatory liability questions, et cetera.

We need that demonstration program to guide the development of that regulatory approach over 10 years.  So again, the bottom line is, I would say, is that if we look today -- although it's daunting, there will be issues of public attitudes, justifiably, et cetera -- but, on a technical basis, I believe that 10 years is roughly the time period, with a dedicated program, over which we could resolve the scientific infrastructure and regulatory challenges. 

LEVI:  Before we move on to questions, I do want to talk a little bit about China.  And the report focuses quite heavily on China in its international elements, almost to the exclusion of India.  Can you tell us a little bit about the Chinese challenge, about the scope of the challenge?  And also, about where the Chinese government might be heading and how we deal with them? 

MONIZ:  Well, the focus on China was motivated by the simple, you know, Willie Sutton philosophy:  "Why do you rob banks?" "That's where the money is."  Why do you focus on China?  That's where the CO2 is. 

You know, it was only a few years ago that the expectation for when China would exceed U.S. CO2 emissions was around 2020.  That has now been re-normalized to November of this year -- I mean, roughly speaking, a bit facetious, but sometime around -- we are roughly at parity.  And that's happened because of something that nobody that nobody really expected. 

Ten years ago, the United States and China each used roughly 1 billion tons of coal.  Today we use roughly 1 billion tons of coal.  China uses 2-and-a-half billion tons of coal.  Last year they brought on-line about 100,000 megawatts of coal-fired electricity. 

And of relevance to the question you asked, Michael, is the fact that that did not occur.  In fact, it is completely obvious there is no way the Chinese central government could have managed construction of 100 gigawatts of coal plant.  It had to happen by local decisions at the town and provincial level, which also means somewhat chaotic, not exactly uniform, best technology, being put in place.

And this is the huge challenge.  That is, I personally, actually -- and I'd be curious to hear Congressman Boucher's take on this -- I believe that with U.S. leadership -- and I agree completely that without the U.S. coming forward and implementing -- beginning to implement a carbon control regime, there is no chance in the world that China will be coming in. 

On the other hand, I believe there are reasons for optimism that China could engage in a carbon control regime in a reasonable timeframe.  However, the internal political dynamics to which I referred, suggest that the declaration of such a policy should be viewed as somewhat aspirational, presumably for quite some time -- that it will take time, that even with the will to organize an effective implementation regime.

I believe, certainly without getting into specifics, that the key will be for China, and then for other countries -- to give you, again, a scale, India is now at about a half billion tons a year of coal, so 20 percent of China -- but basically, as these emerging economies grow, we need to find, in my view, an international regime -- which Congressman Boucher will no doubt design, that has, essentially, phased introduction of carbon control in these countries. 

Indeed, in our report you might be interested to look at a computer experiment we did in which we took a time delay of 10 years, as an example, in the implementation of carbon control in the emerging economies compared to the industrial economies.  And if you think about a carbon budget for the world to mid-century, the impact of that 10-year delay was roughly 10 percent -- so neither negligible, nor a show-stopper.  And that kind of motivates this idea of a phased-in global program. 

LEVI:  Well, Congressman, how do you see things going, from an American perspective, on China?  What's going to work in Congress?  Obviously, back in the late 1990s Congress wasn't going to play a game with anything that didn't involve immediate constraints on countries like China.  What's it going to look like this time? 

BOUCHER:  Well, I think you began the conversation by acknowledging the main reason that the Kyoto Treaty failed in the United States.  When that treaty was negotiated, within weeks of the conclusion of the conference in Kyoto the United States Senate, in a rare, unanimous act, passed by a vote of what I recall was 98 to nothing, a non-binding resolution directed to the White House basically saying, do not send the Kyoto Treaty to the Senate because we will not ratify it.  And this from a group of people who can rarely agree on what time it is.  (Laughter.) 

And it was a unanimous vote.  If you read the statements of the senators at the time, the main reason that they voted for that non-binding resolution was because there was no obligation on the developing world where most of the growth and CO2 emission is occurring.  The obligations fell entirely on the developed world.  And we're not going to make the same mistake twice.  Whenever we put forward a climate change mandatory program, it is going to have to have elements within the four corners of the document that assure participation by the developing world. 

Now a number of approaches will be considered, but here's one that has gained particular resonance and traction.  It has been recommended by industry and by organized labor joining together, and it has the benefit of simplicity in the way that it operates.  It would simply say this:  That for countries that do not have a control program for greenhouse gas emissions meeting certain standards, any item exported from such a country to the United States would have to be accompanied by an emission credit, purchased on one of the climate exchanges, that would equal the carbon dioxide burden created by the manufacture of that product, and the transportation of that product, to the United States. 

So, you know, there would be problems in terms, I would acknowledge, of being able to take a proper evaluation of what those burdens are, and reporting mechanisms would be somewhat challenging.  But within the seed of this idea, perhaps, is a workable approach that would enable us to say, here is how we are treating this, and we are very serious about ensuring that developing countries either create their own programs or purchase some mission credits that would equal the burden that they're imposing on greenhouse gas emissions through the manufacture and transportation of these products.

I would welcome the advice of our panelists about this, but my sense is that if we adopted such an approach, the likely outcome would be countries such as China deciding to develop their own emission control programs rather than undertake the burden of having to go into the international market and purchase mission credits for every item they send to the U.S.  They have their own air pollution issues in China today.  If you've been to China recently, you'll see how polluted the atmosphere really is.  It's difficult -- in talking about the Olympics, for example, there is a consideration being given to how the air pollution problems will be addressed with regard the participants in those Olympics.

And so they have some needs unrelated to greenhouse gas emissions.  My sense is at some point they're going to impose controls in order to address those problems anyway.  And it is probably more economical if you're going to control for criteria pollutants to control for greenhouse gases at the same time rather than come back at some future time and retrofit for the greenhouse gases. 

My sense is if we put an approach like this into our log, some version of that, what we would get is the desired response coming from developing countries.  China has already, I think, signaled that it's basically waiting for the United States to go first on greenhouse gas emissions.  They're not going to do anything until it's clear that we intend to act ourselves.  But when we make it very clear that we do intend to act, I think we can expect that China fairly quickly will come to another position.  And that probably would be the consequence of a general discussion that China would have with the United States, perhaps not just about pollution controls and greenhouse gas emissions, but about some other issues as well. 

I wouldn't be surprised to see them put some trade questions on the table and talk about currency evaluations and other things that are of concern to them and concern to us.  And so a general conversation in which leverage on both sides gets used in order to reach some accord on a range of outstanding issues.  That would be in my view the likely outcome. 

But I'll end back where I started, and that is we have to have within the four corners of our bill some assured way of having international participation.  Politically our legislation would be a non-starter without it. 

MONIZ:  Okay, I just had one brief comment, that I agree with that, and would add that in addition to a range of environmental issues, security issues can also be aligned with the Greenhouse Gas Control Program. 

LEVI:  I think we could continue this conversation amongst the three of us for a long time.  It's absolutely fascinating, and I'm happy that the trade issue came in because, of course, this is one of the hardest parts of the discussion right now about how to deal with climate change in the United States.

But I'd like to open it now for questions to the floor.  Ruth?

QUESTIONER:  (Off mike)

LEVI:  Please wait for the microphone to come and say your name and affiliation before you ask a quick, focused question.

QUESTIONER:  I'm Ruth Greenspan Bell.  It's true that China is just about to overtake us on total emissions, but we still remain the largest per capita emitter of carbon and greenhouse gases.  And there's been no mention this morning about energy conservation or efficiency as a program to address these issues.  And I noticed the light bulbs in this room continue to be, you know, very, very wasteful.  I understand that if we were to change every light bulb in the United States we could basically eliminate the need for the equivalent of something like 90 conventional power plants.  So I'd like you to address some of those issues.

BOUCHER:  May I take a run at that?  Well, it's a current topic for us because the core of the energy bill that we passed in the House in August is broadly improved energy efficiency.  And let me just mention briefly some of the things that we have in that legislation that broadly will promote energy efficiency.  We have new standards for a broad range of consumer appliances, and that includes refrigerators, freezers, clothes and dishwashers, and furnace fans among other things.  Some of the largest consumers of energy within the home environment will be addressed by this.

We do have new standards for lighting, and I'm glad you mentioned that.  Among other things, by a date certain, not long from now -- 2012, I think -- we will have eliminated through this legislative provision the 100-watt incandescent bulb.  And so there is a clear focus on improved efficiency and lighting, and that's very achievable.  That's perhaps the lowest hanging of the fruit. 

I went around my house and put florescent bulbs in almost everywhere, and I expected my wife to raise an objection because in some places, you know, they may not be quite as soft and glowing as the incandescent lights.   She actually applauded that.  Well, she tells me that I dwell in the shadow of my carbon footprint anyway, (laughs) so I guess you could probably expect that from her.  But it has not been an aesthetic disaster in our home to replace everything with fluorescents.  Sorry.  I couldn't resist doing that. 

Let me just mention a couple of other things.  We facilitate the creation of a smart grid, which will be a terrific way to encourage energy savings with the demand side management and time of use pricing, which the smart grid makes available.  We have steps here to capture the waste heat from industry, which today equals about 60 gigawatts of what is really usable electricity if that were captured and converted into electricity.  And we have a broad range of standards for green buildings in both the government and non-governmental sectors.

The savings through 2030 would be about 10.4 billion tons of CO2 emissions.  And in 2030 alone the savings would be on the range of about 800 million tons of CO2 emissions, roughly equal to the annual CO2 emissions of all of the cars and trucks on America's highways in a single year.

And so these efficiency provisions are the biggest step forward that I think Congress has ever taken in one legislative item to promote energy efficiency.  We tried to get that message out as this bill was being debated, and unfortunately we apparently didn't succeed very well.  But --

LEVI:  Ernie, can you -- if I can get a little bit more context on those --

MONIZ:  Yeah.

LEVI:  -- does that really compare to the scale of the -- 

MONIZ:  Yeah, I'd like to reinforce that.  Thank you, Michael.  First of all, let me say that in my view there is identically zero chance of meeting the kinds of aggressive targets that we like to meet without major efficiency gains.  I mean, this was about coal, which is why it wasn't there, but it is number one in the list of required actions. 

Second point -- sticking with my Woody Sutton philosophy, if you look at emissions -- let's say the United States -- by fuel and by sector, there are two large numbers to work on.  One is electricity use in residential and commercial buildings; 70 percent of our electricity goes to residential and commercial buildings.  Big target.  Second target -- oil and vehicles.  And there we need to increase efficiency, talk about alternative fuels, the combination of which, again, is synergistic for both addressing the environmental and the oil dependency questions.

The technologies particularly in the buildings -- and this is why the legislation is so important.  The technology is clearly here today to make major impacts.  We have the problem of a fragmented industry to overcome, but that's a huge opportunity.  On the vehicle side we are not quite there with the technologies, but we're not that far away either, be it increased bio-fuels, and my view as well the use of electricity in the vehicle sector; plug-in hybrids, et cetera. 

And finally, my last comment would be -- this is a little bit off, but I think it's relevant.  There is often a confusion that somehow if we go to a major, let's say, plug-in hybrid future in 15 or 20 years that this would put an enormous strain on the -- let's call it carbon-free or carbon-light electricity sector.  This is not correct.  We could put 100 million plug-in hybrids on the road and impact the projected growth in electricity use in the United States to 2030 by between 10 and 15 percent. 

So in the end I do believe that the development of carbon-light and carbon-free electricity is going to be key as well in the transportation sector. 

BOUCHER:  Let me just add to that --

LEVI:  I'd love to bring in a few more questions from the floor.  (Laughter)

QUESTIONER:  Frank Loy.  My question is, would both of you comment on the conversion of coal to a transport fuel?

LEVI:  Congressman?

BOUCHER:  I support doing that.  It is commercially feasible to do it today.  In fact, the conversion of coal into a transportation fuel is economically feasible when the price of crude oil is at about $40 per barrel.  And obviously, today we're just about at twice that price.   In fact, I think it closed above $80 yesterday. 

So you might ask why is industry not moving forward rapidly in order to make these investments and produce a liquid fuel derived from coal?  And the answer is deep uncertainly about the future of crude oil prices.  There is a belief, perhaps not unjustified, that if we start a liquid coal industry in the U.S. that OPEC would take steps to drive the price of oil down.  I think there is some limit on their ability to do that just based on capacity.  I understand they're pumping pretty close to capacity today.  So that fear may be to some extent unfounded, but the financial analysts are recommending to the investor community caution because of uncertainly about the world oil price.

And so what I have proposed -- and we actually have a broad base of support for doing this; it's not unanimous by any means, but it's a bill I think in time we can pass.  And it would simply say the following:  that we would establish what amounts to a federal price guarantee for coal to liquids.  If the price of oil were to decline below $40 per barrel, the government would then make a payment to the participating coal to liquids operators equal to the difference between the guarantee level and whatever the world price happens to be.

We would make this in the form of a standby loan so that eventually the money would have to be paid back.  But that kind of shock absorber with regard to world oil prices, that kind of financial certainly we're told by a number of coal-to-liquids investors would be sufficient for them to build the facilities.  What they're looking for is kind of a short-term assurance.  Once the industry gets established in the U.S. and the prices of producing this equipment come down, they'll be less concerned over the long-term about world oil prices.  But in the short-term they feel very vulnerable, and this kind of shock absorber, this price guarantee, would actually be exactly what is necessary to get the industry started here. 

Now, you know, I said it's not without controversy, and there are people who simply oppose the use of coal for any expanded purpose.  Many of those people would oppose the continued use of coal even for electricity generation.  But the reality is it's the fuel we have.  And given the security concerns that we have in the U.S. today and the vulnerability to which we are put by the fact that we're importing about 60 percent of the petroleum that we consume in the U.S. at the present time, I think it is well worth taking this step in order to create a coal-to-liquids industry for this country that will add to our economic security as well as our national security. 

LEVI:  Ernie, I found the discussion coal-to-liquids in the report quite balanced and measured compared to most things that are seen out there.

MONIZ:  To mostly what we said?  (Laughs)

LEVI:  No, in the report I found it quite measured.  No.  Maybe I'm setting a low standard.  I found it was really a fantastic discussion though. Can you give a bit of a feel on this tension between energy security and climate change when it comes to coal-to-liquids?

MONIZ:  First, I think there is not a uniform opinion in terms of the so-called break even cost, and I think $40 I would argue is at the low end of the spectrum in particular because these are often moving targets.  Higher oil prices also lifts the break even cost.

But whatever the case, I would support certainly -- and we do support -- a portfolio of federally supported, properly designed and executed demonstration projects for a variety of coal-to-products technologies.  And among them I would say would be coal-to-liquids.  I am, frankly, not as bullish on it, but I think we should have a look.

However, there's another issue, and that is that -- and I think we would all agree that the best policies right now are those that will be synergistic in meeting our supply, our security, and our environmental climate responsibilities.  With coal-to-liquids the fact is that even with carbon capture and sequestration, you have a higher carbon footprint than you do in the alternative of a conventional oil-derived fuel.  That can be ameliorated, however, if you also do biomass co-firing in the conversion process.   So where I would finally come down is I think a well constructed, at-scale, biomass co-fired coal-to-liquids demonstration would certainly be something worth investigating. 

BOUCHER:  Let me add to that.  I really must just spend 30 seconds --

LEVI:  Please, absolutely.

BOUCHER:  -- in response to this.  First of all, anything that we do in terms of government support for coal-to-liquids is clearly going to require carbon capture and sequestration as a condition for the government's support. 

Secondly, I agree with Ernie that co-firing of a biomass with the coal can reduce the overall carbon footprint to a point at which the carbon footprint for the coal-to-liquid process actually is less than the carbon footprint would be for a comparable petroleum-based process.  I differ with Ernie on the scientific analysis.  I'm at some risk here because I don't have any degrees in science at all.  (Laughter)  But we conducted --

MONIZ:  Not yet.  (Laughter.)

BOUCHER:  Well, I'm getting one quickly.  We conducted an extensive hearing on the very question of whether -- if you have carbon capture and sequestration, the carbon burden from a coal-to-liquid facility is greater than or the same as that from a conventional petroleum facility.  And the consensus on the panel -- and I think we had a pretty balanced panel -- was that it is no different, that the fuel itself has the same carbon content as a petroleum produced fuel.  And if you're actually capturing all the carbon from the production process and storing that permanently, you don't have any increased carbon footprint from the coal-to-liquid process.

Nevertheless, I think the political reality is to pass this.  We're going to have to do better than petroleum, and we do it, as Ernie has suggested, by co-firing biomass along with coal. 

MONIZ:  Just a brief footnote, by the way, is -- just a different issue.  Today we could be doing a 5 or 10 percent biomass co-firing in our current coal fleet, and that would be very, very minimal cost. 

QUESTIONER:  I'm Chris Holly with the Energy Daily.  Mr. Boucher, I wonder if you could discuss what your preliminary thinking is on the principles of designing an allowance allocation system.  As you know, the utility industry is deeply split on this issue.  In fact, the only issue within this debate that unites them is their opposition to the government's auctioning a significant portion of the allowances they will need.

How do you see a design that will both have the political support that you need that will also make a significant impact on the problem you're trying to address?

BOUCHER:  Well, probably the single most difficult issue we will have to address after we establish a schedule for implementation of controls will be the allocation methodology.  I will talk about this in terms of example in comparison to what Europe has done.  Their allocation was essentially to the emitters in accordance with their emissions, and it was for free.  They were at the disadvantage of not having had an inventory of emissions history from emitting sources.  And so they basically had to guess what the current emissions were.  They over allocated as a result of that, and there were market disruptions as a consequence of that over allocation.  The emissions trading market essentially at one point plummeted from about 30 Euros down to seven when the real allocations, when the real emission levels became apparent.

Now, we can avoid that in the U.S.  because unlike Europe, we do have a detailed history of our carbon dioxide emissions from sources, source-specific on the utility side, sector-specific on the non-utility, stationary source side.  But from that sector-specific data you can reduce down with economic output comparisons and other kinds of measures to get a site-specific kind of estimation, which will be relatively reliable.

I'm confident that at the start that if we make our allocations to sources in accordance with their emissions and begin the program that way it will be the least painful, most politically attractive way to do it.  And some have said auctions may be necessary to make sure that you get a reasonable price for this and market transparency.  I really don't believe that.  I think that given the fact that we even have a forward market today for emission allowances in the U.S. on the anticipation that Congress is going to adopt a program, that the market is going to price very fairly these emission allowances, and it will be a transparent and liquid market made the more so because we will allow the purchase of offsets and other kinds of things in the agricultural sector.  And given that fact, I really don't think we have to have an auction for that purpose.

In the European Union, they are saying that had they started with auctioning, it might have prevented electricity prices from increasing the way they did because the utilities there passed along the opportunity cost of not selling their emission allowances in the market to their consumers in the form of a rate increase.  It was a kind of an accounting gimmick, something I don't think would be permitted by regulatory authorities here, but it resulted in a rate increase based on a phantom cost.  And an auction of those allowances would have prevented that from happening.  So the Europeans are talking about in the future having some kind of auctioning in order to avoid that consequence.  In the U.S. we don't have to auction to avoid it.  I think we can avoid that from the outset with the proper approach taken in our legislation. 

So I'm disinclined at the moment to give auctioning at least in the early years very much prominence if any at all.  I think the best way to begin is to have our allowances be made to the emitters in terms of their needs.  We're going to have enough problems as it is with coal-fired utilities, for example, and other carbon-intensive industries meeting our reduction schedules.  And I think perhaps at least in the early years is better not to compound those problems by imposing the cost on these emitters of having to go out and pay for the allowances at the outset.

LEVI:  Please.

QUESTIONER:  Allan Wendt.  Are there any promising new technologies for clean burning of coal at the source?  I've read about some, but I don't know whether they are at this point commercially viable.

LEVI:  Ernie?

MONIZ:  Well, certainly there are multiple technologies being explored.  I mean, one fairly straight-forward one, but remains to be demonstrated at a large scale would be, quote, "simple" combustion of coal in an oxygen atmosphere.  And there major cost reductions, for example, in oxygen separation, would be a big enabler for this technology.  But there are also more and more dramatic possibilities.  There are new schemes based upon catalysis for so-called chemical looping technologies, which capture the CO2 as part of the process of converting the coal.  There are within the gasification space new types of gassifiers, so-called high turbulence gassifiers with a much smaller footprint.  There, for example, the challenge would be a material's lifetime. 

So there are a number of these technologies being pursued, which could have dramatic impacts maybe in a 10 to 15-year time scale.

BOUCHER:  Let me just add to that.  The one technology that Ernie did not mention that holds promise I think is circulating fluidized bed technology. 

MONIZ:  Yes.

BOUCHER:  There's a coal-fired plant for which permits have been applied for my district that would actually use a circulating fluidized bed technology.  This is a Dominion power facility. 

The other thing I would mention is this, and I have to put in a plug for a constituent.  In my congressional district at Virginia Tech at the Center for Coal and Energy Research there is a world-class center focused on pre-combustion coal cleaning.  And this would be a way to wash out impurities from the coal before it's burned.  And you had mentioned pre-combustion as -- that was the core of your question.  I would invite you to the website of the Virginia Tech Center for Coal and Energy Research where a variety of new washing and drying technologies are advertised that can help achieve that result.

MONIZ:  If I just may add -- because the fluidized bed is a good example of another technology.  It raises, actually, another point.  We often use the word coal as though it defines a substance.  (Laughs.)  Coal is actually a great range of substances, and different technologies will be optimized for different coal qualities, which is a very important point.

I'd add one other thing if may, Michael, and that is -- it's a different point, but as one talks about the design of the cap and trade system I think another thing that one should keep in mind, particularly as the discussions tend to include things like safety valves in terms of capping price as opposed to capping CO2 -- that the technology shifting cost per ton of CO2 for coal is somewhere in the $35 to $40 per ton of CO2 space.  That's another parameter that we must keep in mind as we think about a trajectory for a cap and trade system in addition to the overarching priority of getting on with a serious program of demonstrating sequestration at a very, very large scale.

LEVI:  We have one or two minutes, so I'll take one last question for our guests.  Sir?

QUESTIONER:  My name is Dan Bob, I'm with Canonbury Advisors.  I should mention, since you brought it up, I'm working with a small plant, a municipally owned power plant in western New York.  It's going to be a 40-megawatt coal-fired plant, CFB.  It's going to be fully integrated using oxygen, oxy-coal, and pumping the CO2 into deep saline formations.  We're going to be hoping to break ground in --

LEVI:  Sir, if you have a question, because we're very short on time --

QUESTIONER:  Yeah, my question is -- we're hoping to break ground next year.  One of the concerns we have is the politics of coal because just a couple weeks ago I believe Harry Reid said he would oppose coal of any form, and I wonder if you can give us some insight into where the politics are beyond what you've talked about already.

BOUCHER:  Well, that's a thoughtful question.  I wouldn't over interpret what he said.  I think he was referring in part to plans in Nevada to build some coal-fired power plants, and he was commenting more I think from the local perspective.  But any time the Senate majority leader says something like that it has resonance.  And so obviously people have read that and are justifiably concerned about what his view might be longer term in terms of how coal is treated on the agenda in the Senate.

That said, I think if you ask the members of Congress who perhaps are the leading proponents of environmental positions -- certainly in our committee -- that very same question, here is likely what they would tell you.  There are some realities that we have to acknowledge.  Coal is the fuel we have.  We have a 250-year reserve of it.  As I said earlier, we don't have alternatives to coal readily available at reasonable prices. 

And given that fact, there is an acknowledgement of the continued role for coal.  But I think the environmental advocates would say restrict it to electricity generation.  They would not be fans, for example, of what I would like to see, and that is coal-to-liquids, coal-to-natural gas, coal to a variety of other energy feedstocks.  They would prefer that coal be used where we really have to use it, and that is electricity generation.

They would also tell you that its use for electricity generation will have to be accompanied by carbon capture and storage.  And I think that brings them to a position -- hopefully it will -- where they will strongly support our agenda that will accelerate the federal efforts to bring the storage technology in particular online far quicker.  And that is going to involve money.

EPRI, for example, the R&D arm of the electric power industry, tells us $8 billion over a period of 10 years will be required just to get this available by about 2020 to 2025.  I would welcome Ernie's advice on that, and I'll have to seek it privately, 'cause I know the time for this panel is up.

But we're going to have to spend more money, and we're going to have to do other things and have this effort of DOE for demonstration projects put on steroids in order to make this happen.  I think we're going to have the support of the environmentally most sensitive members on our Energy and Commerce Committee as we undertake that.

LEVI:  We can certainly take this conversation on for a lot longer.  It's been fascinating.  Thank you both very much for joining us, and thank you all.  (Applause)

BOUCHER:  Thank you.

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