Congress should promote coal to liquids technology to increase energy independence

With gasoline prices at the forefront of the national energy debate, it is appropriate that Congress consider measures that would reduce our nation’s dependence on imported oil. One way that we can accomplish this goal is to incent the use of coal-to-liquids technologies that can replace petroleum in powering transportation.

There is a proven technology that enables the conversion of coal to liquid fuel. Coal liquefaction has been in use since World War II. In fact, today South Africa is using coal liquefaction to produce approximately 40 percent of its transportation fuels.

The technology is economic when crude-oil prices are approximately $40 per barrel. Oil prices are much higher than that benchmark, and the Energy Information Administration forecasts that prices for crude oil will remain above this level for the foreseeable future. In addition, our nation has an abundance of coal, with reserves of approximately 250 billion tons.

Given these economics and the benefit of moving closer to energy independence, there is great potential in converting coal to liquid fuel.

In recognition of the considerable potential for non-petroleum based liquid fuels, the Congress last year enacted a 50-cent-per-gallon excise-tax credit for alternative fuel mixtures — including fuel derived from coal. However, the tax credit is set to expire in 2009. Given the time necessary to finance, permit and construct a new coal-to-liquids facility, it is extremely unlikely that any coal-to-liquids production can occur by 2009.

While coal-liquefaction technologies have been used successfully for some time in some parts of the world, the technology has not been widely adopted in the United States. Placing in operation an 80,000-barrel-per-day coal-to-liquid facility would cost approximately $7 billion and take between five and seven years to construct. Therefore, the coal-to-liquids facilities would be unable to utilize the alternative-fuel tax credit, which is only payable when production begins, before it is set to expire.

To remedy this problem, I have joined with my colleague from Illinois, John Shimkus, in the introduction of legislation that would extend the tax credit through 2020.

In addition to extension of the alternative-fuel-mixture tax credit, Congress should examine additional methods by which we can incent coal liquefaction as well as specific partnerships that might facilitate the launch of coal-to-liquids production.

The novelty of coal-liquefaction technologies to the United States means that obtaining the investment capital for facilities is still somewhat uncertain. I am interested in exploring a means through which the federal government might be able to provide some additional financial encouragement to incent the construction of the plants.

One way to accomplish such a goal would be to establish loan guarantees or investment tax credits. While these methods would certainly be welcome, I am also interested in the possibility of establishing a different mechanism for government support.

For example, the federal government could establish a price-support-type mechanism through which the government would guarantee to make payments to coal-to-liquids producers in cases in which the price of their product dropped below a certain level.

Since coal liquefaction is economic when crude oil is approximately $40 per barrel, the price floor could be set in a range comparable to that price. Given the probability that oil prices would not descend below that price, it is highly unlikely that the federal government would incur any costs under such a system.

In addition, a price ceiling could be established, and if prices rise in the future above a specified level the coal-to-liquids operators would pay the federal government a certain amount, preventing a windfall to companies that launched with federal financial assistance.

Establishing a federal guarantee correlated to price would enable companies to make the necessary investments to construct and operate a number of coal-liquefaction facilities.

Our nation can gain energy independence through use of domestic resources. Since coal is our nation’s most abundant energy resource, we should harness federal energy policy behind a major effort to build coal-to-liquids facilities.

Boucher is a member of the Energy and Commerce Committee.