Can We Do It

Advanced coal technology just may work. But we need to clean up our policies first. First, we need to send a signal that we will not grandfather the right to future carbon emissions for the 150 traditional plants planned for development—planned now partly out of their developers' desire to beat out climate regulation and not be exposed to carbon costs. "We need to send a message to the developers right now that they can't build a dirty plant in 2007 and avoid a CO2 cost in 2009," says Steve Clemmer of the Union of Concerned Scientists. "CO2 stays in the atmosphere for one hundred years. It is the gift that keeps on giving. We must fire a warning shot across the bow of those that want to build dirty plants now so they can escape responsibility. That means no grandfather clauses, or at least minimal ones."31

Second, we need to recognize that incentives are not enough. Right now, the coal industry is being offered a $1 billion carrot in the form of federal support for clean-coal R&D. Is that carrot big enough, powerful enough, and dynamic enough to drive a fundamental shift away from pulverized coal and toward clean coal across our entire energy system? In a word, no.

This is too big a rabbit to coax out of its hole just by subsidizing research. In nature, coal can be transformed from a black lump of carbon into a crystalline diamond. In politics it is the same. Both require pressure.

"Only when the Clean Air Act mandated a 50 percent SO2 reduction did anything happen," says Dallas Burtraw, senior fellow at Resources for the Future, of America's experience with reducing sulfur dioxide pollution. He points to research from the University of California demonstrating that despite decades of generous subsidies to the industry to help it develop cleaner coal technology to reduce sulfur dioxide, improvements simply were not made until a federal mandate in 1990 required them.32

"With a mix of the carrot and stick, the stick turns out to be a very important instrument," Burtraw says. "Forcing regulations don't need to be big, but they must start soon. They begin a process to influence investments and change industry expectations. They can lead to more public- and private-sector research and many small improvements on the margin that matter."

The Bush administration insists on trying to fight this battle with one hand tied behind Uncle Sam's back. It refuses to take even the mildest regulatory steps to protect the public's health against the ravages of CO2. It is passionate in favor of handing out tax-cut goodies to the industry and equally passionate about refusing to require industry action on CO2 in exchange for those handouts.

We need laws that create a legal cost for using up the capacity of our climate to absorb more carbon. We also need laws that give the industry certainty about what behavior is acceptable and what is not. To fail at this places our economy and our environment at risk.

The rush to build traditional coal plants may also expose utilities to financial costs. By 2030 even conservative analysis suggests that utilities could pay at least $20 to $50 per ton in emissions charges under CO2 regulations.33 The utilities that are charging ahead with even the most modern pulverized-coal plants that do nothing to limit carbon emissions are making high profits today but exposing their investors and customers to enormous risk of a known threat very shortly. That is why shareholders are passing resolutions in corporate meetings to require consideration of CO2 impacts in planning—a prudent move.

So Mr. Anderson and his Duke Power are not alone. The major West Coast utility, PG&E, has joined his call for federal action, as have BP and the major industrial energy user Alcoa, preferring to deal with one federal CO2 cost constraint rather than a fifty-state hash of inconsistent ones. "The worst scenario would be if all fifty states took separate action and we have to comply with fifty different laws," says Anderson.34

Anderson's colleague Jim Rogers agrees, but with a caveat: "We cannot have fifty state cap-and-trade systems," he says. "We need one consistent standard, but one that recognizes the different situations of different regions of the country." He argues that any cap must take into account the dramatic differences in the energy situations of the various states. "The geology of Indiana, with all its limestone, may accommodate in-ground sequestration of CO2 with ease, while that of North Carolina will probably not. We might have to do chilled ammonia rather than IGCC in the Carolinas. If so, the system has to give some break to the Carolinas. Coal is 50 percent of our energy but is 70 percent in some regions. Those regions need some leeway on the costs imposed by a cap. We provided such relief to more deeply affected utilities with the sulfur dioxide cap, and we need to do the same in CO2." Finally, with the acceptance of an inevitable limit to our carbon emissions, these utility executives will be able to move on to deeper issues about how such a policy might be designed.

The power that attracted a Bush administration backer to the cause of a CO2 cap is certainty. When a utility considers spending $300 million for a five-hundred-megawatt electricity plant that will last for fifty years, it wants to have the base economics locked in, fixed, and not subject to the whims of fifty state legislatures. Anderson has taken the unprecedented step of suggesting a cost be imposed on his industry because of the certainty of global warming and the benefits of certainty when making investment decisions.

Anderson's position is revealing. It shows that incentives to the coal industry will not be enough to induce the type of fundamental shift in planning that global warming demands. We should note that he has suggested a CO2 cost, not just some tax incentive for coal plants that use IGCC technology. When a major utility suggests such an action, it should tell us that only the tough step of imposing a cap on carbon, likely coupled with mandates to store carbon, will do the trick of accomplishing a shift to the next generation of advanced coal technology and the future of coal itself.

These businessmen know one pivotal rule: Incentives come and go with Congresses, but regulating CO2 would be permanent, and they can plan on that.

"Uncertainties can kill you," says Paul Fischbeck, a Carnegie Mellon University professor who has developed a model of uncertainty in the economic climate for utilities. He sees the delay in implementing CO2 regulations as counterproductive. "We run seminars with utility executives and ask them to raise their hands if they don't expect carbon regulation in twenty years, and in a room of two hundred we get about two or three hands. They expect something, but they don't have any idea what shape or form it will take or when it might be enacted."35

Jim Rogers has the realistic view that if we meld action and fairness, the task is achievable. "If we do this right, we can get to 1990 emission levels by 2030. We can get this job done. We just need a fair cap-and-trade system and the right mix of what I would call development and deployment investment."36 The cut he proposes is a weak one, but the movement is in the right direction.

His point is only reasonable. Any utility executive in 2007 who does not see a carbon cap coming is not reading the newspapers. If they choose to build for the past, it is out of a conscious irresponsibility, not out of surprise.

However, even a rigorous cap-and-trade system, during its crucial first few years, is not likely to establish a market price for emissions high enough to incentivize construction of new coal plants that capture and store carbon (most analysts believe that carbon price would be in the range of $25 to $30 per ton of CO2). In this case, a technology mandate may be necessary, requiring all new coal plants to be capable of capturing and actually sequestering emissions by a certain future date.37

We have tons of coal. We have tons of innovative energy. We may be able to combine both for a couple of centuries of coal without the carbon, but only if we pick the right places to mine America's rich vein of innovative talent.

One way or another, coal will be part of our near-term future. It is up to us to see that it is used in a way that ensures we have a future that is long term.

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