Sens. Jim Bunning (R-Ky.) and Barack Obama (D-Ill.) have teamed up to form a new Senate caucus with the express purpose of promoting development of a domestic coal-to-liquid fuels production industry.

The senators want to address U.S. reliance on foreign sources of oil through expanded use of coal, a resource found in abundance domestically.

Coal supplies, the argument goes, can help displace oil-based transportation fuels. Bunning in a statement said he and Obama are forming the Senate Coal-to-Liquid Fuel Caucus to “help lead this fight.”

“The group will educate members and staff on CTL technology and promote effective policies that will help create a domestic marketplace for CTL fuel,” added Mike Reynard, a spokesman for Bunning.

Luke Popovich, a spokesman for the National Mining Association, said the caucus could be a helpful vehicle. He noted a caucus can help reach across party lines, internal jurisdictions and parochial interests.

“It’s a way of saying ‘lets take an issue … and see if we can’t all put our shoulders to the wheel and make the case for it,'” he said.

The two lawmakers introduced legislation last week that includes new loan guarantees, tax credits and other provisions to stimulate construction of coal-to-liquids fuels plants. Cosponsors of the “Coal-to-Liquid Fuel Promotion Act of 2007” include Sens. Richard Lugar (R-Ind.), Mary Landrieu (D-La.), Craig Thomas (R-Wyo.) and handful of others.

House backers of CTL fuels include Natural Resources Committee Chairman Nick Rahall (D-W.Va.), who plans to reintroduce similar legislation to the Bunning-Obama plan. Versions of the bills were also introduced in the last Congress.

Advocates of coal-based fuels — widely produced in South Africa and generating new investment in China and elsewhere — see both opportunities and hurdles in the United States. The country has massive coal reserves, but Bunning noted in a Senate floor speech last week that legislation is needed to help spur major plant construction here.

He said a typical plant could cost over $2 billion and take five to eight years to construct, including planning and environmental permitting. “This is a challenge for even the biggest risk-takers on Wall Street,” Bunning said last week. “Raising the capital needed to develop a new technology is always difficult, but the multibillion dollar investment scale of a CTL plant has made it nearly impossible.”

Bunning, Obama and several other lawmakers last week introduced a bill that would provide loan guarantees for the first wave of large-scale commercial plants that each have a capacity of at least 10,000 barrels of fuel per day; authority for the military to enter into long-term coal-to-liquid fuels procurement contracts; and funds for continued Air Force testing and evaluation. It would also allow 20 percent of the nation’s Strategic Petroleum Reserve to be comprised of these fuels.

The legislation also allows up to $200 million in investment tax credits per plant for as many as 10 new CTL plants. It would also extend fuel excise tax credits for these fuels until 2020. Bunning said the current 2009 expiration date renders the credit useless because they will “expire long before the first CTL plant is even operational.”

The bill also provides tax credits for sequestering carbon from CTL plants or using it for enhanced oil and gas recovery projects.

Off Capitol Hill, CTL fuels are attracting interest from state officials including Montana Gov. Brian Schweitzer (D), who hopes to take advantage of his state’s enormous reserves to create a domestic fuel source.

But environmentalists worry that CTL fuels will be produced without capturing the carbon dioxide emissions and also note that there are tailpipe emissions even if carbon capture and storage addresses the CO2 from fuel production.

“We are very concerned, because what these bills and others like them represent are an attempt to address energy security while throwing climate overboard,” said Deron Lovaas of the Natural Resources Defense Council. “If you are concerned about climate, it does not make sense to consider a shift to a liquid fuel that could undermine your climate goals.”

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From E&E daily
Ben Geman, E&E Daily senior reporter