Coal makes a comeback
Seven years ago, the future looked rather bleak for America’s coal industry. After nearly two decades of decline, Clinton-era clean air standards in the 1990s made it virtually impossible for the country’s energy plants to utilize coal without costly repairs, retro-fittings or all new facilities designed to substantially reduce the amount of carbon dioxide emissions and other pollutants found to be the cause of greenhouse gases and global warming.
The Kyoto climate treaty, put together in the late 1990s with then-Vice President Al Gore’s stewardship, threatened to be the last nail in the coal consumption coffin. Under the treaty, industrialized nations would be held legally responsible for the CO2 emissions they produced. As a precursor to the treaty, the Clinton Administration brought lawsuits against eight U.S. utility companies for failing to upgrade their pollution controls under a program called New Source Review (NSR) that required utility companies to replace or modify their older plans and install new pollution control devices.
In his first presidential campaign, George W. Bush claimed to support the reduction of carbon dioxide emissions as instituted by the Clinton Administration and the Kyoto protocol. But shortly after his 2000 election, President Bush said he had reached the decision that the harm from carbon dioxide pollution had yet to be scientifically established. As a result, one of his first acts in office was the decision to not sign the Kyoto treaty. Soon after, in the spring of 2001, the Bush Administration announced its own energy plan — one that called for renewed investment and utilization of coal as one of America’s primary energy sources. He also sought, and received, an overruling of the lawsuits brought against the utility companies the Clinton Administration had sued for failing to meet clean air standards.
With the help of a fossil-fuel friendly White House, America’s coal industry has garnered a tremendous amount of political clout and increased profits over the past six years. Thanks to an unprecedented “public-private partnership” between coal companies and national and state governments, including billions of dollars in tax abatements and grant monies, coal has made a comeback as America’s fuel of choice.
Here in Indiana, with a governor who left the White House to occupy our Statehouse, one of the world’s largest coal companies is about to become the supplier of the majority of the state’s energy.
Pollution, politics and profits have all fueled a “clean-coal” revolution that is full of dirty secrets.
One of the most abundant natural resources in Indiana is coal. However, slightly more than half of all coal used in Indiana comes from out of state. That’s because Indiana, like the rest of the United States, has a major problem where coal is concerned: It’s cheap, it’s abundant, but it’s dirty.
Currently, 75 percent of the state’s energy expenditures leave Indiana for imports of coal, natural gas and oil. Coal provides over 90 percent of electric generation in the state, but over 50 percent of the coal consumed comes from outside of the state. Indiana has an abundance of coal — 17 billion tons of reserves or 485 years’ worth at current consumption rates — but it is high in sulfur content and requires clean air technologies to use productively.
Peabody Energy, the largest coal company in the world and owner of Black Beauty Coal, the largest coal company in Indiana, now has billions of tons of unusable Indiana coal sitting in reserve. Because of its high sulfur content, Indiana coal can’t be burned in traditional utility plants without undergoing costly pollution controls. Quite simply, it’s a product no one wants, and Peabody Energy owns billions of tons of it. But thanks to Indiana Gov. Mitch Daniels’ new “Hoosier Homegrown” energy initiative, the winds of fortune are about to blow Peabody’s way.
According to the governor’s new plan, “Indiana will best use its coal reserves and rely less on imported coal through coal gasification, or Integrated Gasification Combined Cycle (IGCC). This process takes highly sulfuric coal and converts it to gas as a clean source of fuel to fire the generation of electricity.”
The gasification process, more widely known as clean-coal technology (CCT), is the saving grace of the coal industry, particularly Peabody Energy. The new private-public partnership between Daniels and Peabody Energy calls for the transformation of Indiana’s dirty coal into natural gas that can be sold to the state’s utility companies. But the roots of Daniels’ Hoosier Homegrown energy plan are hardly Hoosier or homegrown.
Over the past 20 years, the federal government has spent more than $5 billion for research and development of clean-coal technology in order to revive a quickly dying coal industry. This jumped tremendously under President Bush and his “FutureGen” program — a partnership between the federal government and the world’s largest coal and electric companies, including Peabody Energy. In his 2005 budget, Bush proposed nearly $300 million in federal funding for FutureGen research and development projects.
And now, FutureGen, Peabody Energy and the state of Indiana are joining forces. The federal Department of Energy (DOE) has chosen Indiana as one of only three states in the U.S. to facilitate the construction of a clean-coal power plant under the DOE Clean Coal Demonstration Project. All of the recipients of the DOE Clean Coal Demonstration Project grants are members of FutureGen, and Peabody Energy is the largest coal company in the alliance and in the state. Peabody Energy will build Indiana’s clean-coal plant.
Not coincidentally, on May 9, 2005, Gov. Daniels signed into law a bill authorizing the “Coal Gasification Technology Investment Tax Credit.” The amount of the state tax credit is equal to 10 percent of the first $500 million invested in a qualifying clean-coal facility and 5 percent of investment above that amount. The credit will only apply to newly constructed facilities in Indiana that use 100 percent Indiana coal. The law went into effect on Jan. 1, 2006.
“Sequestered” carbon dioxide
Clean-coal technology has enabled companies like Peabody to eliminate most of the emissions of sulfur and other pollutants that cause smog and acid rain. The clean-coal plants that turn coal into gas are virtually air pollution free. That’s the good news.
The bad news is that these plants, even the most technologically advanced, still produce as much as five times the carbon dioxide waste as natural gas facilities.
Currently, clean-coal plants can “sequester” 90 percent of the CO2 emissions in a liquid form and prevent it from entering the atmosphere — an amount that exceeds Clinton era and Kyoto treaty levels of carbon emissions, but is acceptable under the Bush Administration.
Carbon dioxide emissions are the No. 1 cause of global warming, and the coal industry is the No. 1 culprit. Peabody Energy Chairman Irl Engelhardt, however, doesn’t believe in global warming. “It’s an environmentalist PR tool. There’s no science to prove it,” he said during a congressional hearing in 2001 while lobbying for looser emissions regulations for coal plants.
Those who buy natural gas to fuel their electric utility companies rightly predict that when the Bush Administration leaves office, the cost to reduce the CO2 emissions under new air quality regulations will increase. Few manufacturers want to invest in new technology and new facilities that could be obsolete or extremely costly to retrofit within a decade. That’s why in addition to receiving federal funds to develop the technology to produce clean coal and federal funds to build the plants to produce clean coal, companies are asking for and receiving tax incentives to help off-set the high cost of building and operating future clean-coal technology facilities themselves.
Here in Indiana, Gov. Daniels has promised more than $75 million in state tax credits, abatements in local taxes and grant monies for workforce development to companies that build new clean-coal plants in Indiana. One of the conditions for the credits, however, is that the plants must use Indiana coal. This creates the very real possibility that Peabody Energy will build its clean-coal plant in Indiana using 80 percent government funding to create a profitable product from dirty coal they already own, and receive millions in state tax credits to do so.
Just as troubling as the corporate welfare aspect of the proposed clean-coal plant in Indiana is the unproven science that the technology is based on. Like most of the discussions of clean-coal gasification facilities, Daniels’ Hoosier Homegrown makes no mention of the most dangerous aspect of the technology: What happens to all the carbon dioxide that has been “sequestered”?
There are currently two methods for disposing of the more than 20 billion tons of CO2 waste generated annually by a clean-coal facility. The first is to inject the waste deep into the Earth, usually inside abandoned gas or coal reserves. The second is to inject the waste deep beneath the ocean floor. Both methods remain in the testing stage, and both currently show signs of potential environmental disaster.
Scientists testing the deep geologic disposal of carbon dioxide are finding that it’s disintegrating the minerals in the very rock compounds meant to keep it buried and thus leaking into the soil at a much, much faster rate than predicted. In a study released several months ago, researchers at the FutureGen project northeast of Houston reported “no catastrophic failures” but acknowledged “an aspect of risk we hadn’t considered,” particularly “a new potential risk should CO2 leak into shallow aquifers.”
Studies on the undersea burial of CO2 have not fared much better. The most recent data indicates that the naturally forming algae created when CO2 is released underwater is appearing at an alarming rate and “filling up” the underground spaces so quickly that small amounts of CO2 are already beginning to leak into surrounding waters.
While both methods are currently in pilot programs, the lack of proof that burying billions of tons of carbon dioxide is, in fact, a safe thing to do has not stopped the coal companies from pushing forward with clean-coal technology, nor has it stopped the federal government from funding clean-coal research and manufacturing.
Peabody goes to Washington
Coal consumption has been on the decline in recent decades, primarily due to the vast amount of pollutants it produces when burned. Indiana is the sixth largest emitter of carbon dioxide in the United States because of steel and coal production, and recently the Environmental Protection Agency found 17 Indiana counties in violation of air quality standards, requiring the state to form a cleanup plan for its coal production and consumption.
In a letter of response to the EPA, Gov. Mitch Daniels opposed some of the violations and their subsequent penalties, saying the Environmental Protection Agency could do better to balance economic growth and development with environmental safety. A few weeks later, Daniels announced his own initiative for Indiana energy consumption and production, based in very large part on innovative new technologies for using coal championed by Peabody Energy.
After winning the 2000 presidential election, George Bush named three Peabody Energy executives to his transition team as advisors for the new administration’s energy policies. Steve Chancellor, president of Black Beauty Coal, was named as an advisor to the Bush-Cheney energy policy transition team; Irl Engelhardt, Peabody Energy chairman of the board, was named to the transition advisory team for the EPA and for a while his name was in the running for secretary of energy; John Wootten, Peabody Energy VP, served with Chancellor on the energy advisory panel.
In addition to serving as policy advisors, Peabody and its executives were also some of the Bush-Cheney team’s biggest campaign contributors. Since 2000, Peabody Energy has donated nearly $2 million, Irl Engelhardt has personally donated $350,000 and Steve Chancellor has donated another $350,000. So generous are the Peabody executives that the Republican National Committee has called Engelhardt “a major player,” and Chancellor was invited to go on a golf trip to Spain with George Bush Sr. and other “friends” of the campaign.
While the Bush Administration was forming its energy policy based on recommendations from Peabody executives, Engelhardt filed with the SEC for an initial public stock offering. When President Bush abandoned his support of carbon-dioxide regulations, effectively killing the Kyoto treaty on global warming, no one was happier than Engelhardt. Had the treaty been signed, coal-burning plants would have been required to adhere to pollution controls they claimed would put them out of business.
Five days after the president announced his energy plan, one that did not commit the U.S. to the global Kyoto treaty and eventually reduced pollution regulations for coal, Peabody Energy stock went public. Opening at $28 a share and closing at $36, Engelhardt’s personal stake of more than 633,000 shares of Peabody stock was worth more than $23 million by day’s end. On July 31, 2006, Peabody stock closed at $48.89, an increase of over 260 percent over the past two years.
Peabody Energy is the world’s largest private sector coal company, fueling nearly 10 percent of all U.S. electricity and 3 percent worldwide. The company had $4.6 billion in revenue in 2005 from the sales of 240 million tons of coal, up from $2.7 billion in revenue from 198 million tons of coal sold in 2002.
And just like at the federal level, Peabody Energy and its executives are both shaping energy policy and financing campaigns in the state of Indiana. Peabody Energy has limited its direct donations to the Indiana Coal Political Action Committee, which in turn makes its unlimited contributions. But Steve Chancellor, as an individual, has not been under the same restrictions.
Good for America?
While Mitch Daniels was running for governor of Indiana, Chancellor donated a total of $80,000 to his campaign. During the same time period, Chancellor donated an additional $100,000 to the Indiana Republican State Committee. He made no contributions to Democratic candidates. Combined, Chancellor has given more than half a million dollars to the Republican Party and Republican candidates in Indiana over the past three years.
And when it comes to developing energy policy, Peabody Coal is as active on the state level as it is on the federal. In 2005, Wayne Parke, Black Beauty Coal VP, became a member of Gov. Daniels’ energy advisory panel that helped shape the Hoosier Homegrown plan, particularly the clean-coal technology components. Parke himself donated $2,000 to Daniels’ campaign, as well as contributions to Indiana Coal PAC.
On Dec. 29, 2005, while still putting together his new energy plan for the state of Indiana, Daniels received a $150,000 campaign contribution from Chancellor, more than two years after he won the last election and two years before his next. It remains the single largest individual donation the governor has received since taking office.
In April of this year, Gregory Boyce, the president and CEO of Peabody Energy, the largest coal company in the world and owner of Black Beauty Coal, the largest coal company in Indiana, presented the key findings of a study conducted by the National Coal Council, a study Boyce himself chaired.
The presentation was made at a conference for utility company owners, and Boyce was there to outline “an eight-point plan to dramatically enhance U.S. energy security, reduce reliance on foreign oil and natural gas, and lower energy costs.” According to Boyce and the National Coal Council, the plan is based on innovative new technologies for using coal.
With clean-coal technology, the coal industry believes it has found the key to reviving its dominance in American energy. According to Boyce, this is not only good for corporate profit margins, but good for America as a whole. “Substantial coal reserves to meet these growing needs are available in more than 25 states, allowing for widespread coal production, liquefaction and gasification,” Boyce said. “As a result, the standard of living for all Americans will increase due to lower energy prices, a surge of industrial activity and creation of wealth. America has enough coal reserves to support this robust use of coal for more than a century.”
In his Hoosier Homegrown energy plan, Daniels outlines a plan to dramatically enhance Indiana’s energy security, reduce the state’s reliance on imported oil and natural gas, and lower energy costs — primarily through the use of new technologies for using Indiana’s massive coal reserves. And just like the executives at Peabody Energy, the governor promises that the standard of living for all Hoosiers will increase due to lower energy prices, a surge of industrial activity and creation of wealth. His plan also highlights the fact that Indiana has enough coal reserves to support this robust use of coal for more than a century.
Coincidence or not, Peabody Energy and its executives have been major financiers of Republican politicians and are now championing a revitalization of the coal industry through lower pollution controls, increased production and generous federal and state funding. The recipients of those donations, like Gov. Mitch Daniels and President George Bush, are now pushing the same agenda. Clean coal is, perhaps, an oxymoron in more ways than one.
The drilling project was completed in September according to schedule, and both the DNR and Black Beauty Coal are awaiting the results. Hupfer has attempted to excuse the drilling project by saying that Hoosiers deserve to know what resources might be there. “Any profits from coal mining in the wildlife area would go toward purchase of additional wildlife habitat,” according to Hupfer.
While the results of the drilling and the future of the Glendale wetlands are still uncertain, Kyle Hupfer resigned his post as head of the DNR effective Dec. 1. He has taken a position as general counsel for ProLiance Energy Corporation in Indianapolis.
Although CO2 is a naturally occurring component of the air we breathe, massive volumes of the gas entering the atmosphere from both industrial and natural emissions are concentrating in the upper atmosphere and, most scientists believe, throwing the Earth’s climate out of balance.
Under the Clinton presidency, the EPA took the line that it did have the authority to regulate CO2. But the Bush Administration reversed that policy and, in 2003, the EPA announced that the gas was not a pollutant under the Clean Air Act, and consequently it had no right to regulate it.
Since then, the White House has taken a consistent approach that voluntary measures are preferable to federally imposed solutions. It argues that the scientific causes of global warming remain insufficiently understood for tighter regulations to be merited.
A decision from the Supreme Court is not expected until the summer of 2007.