Producing Liquid Fuels from Coal: Prospects and Policy Issues

Producing Liquid Fuels from Coal: Prospects and Policy Issues

Producing Liquid Fuels from Coal: Prospects and Policy Issues

Producing Liquid Fuels from Coal: Prospects and Policy Issues

Synopsis

Record world oil prices have prompted renewed interest in producing liquid fuels from coal. The United States leads the world in recoverable coal reserves. Moreover, the technology for converting coal to liquid fuels already exists, and production costs appear competitive at prices well below current levels. Yet, despite its promise, private investment in coal-to-liquids (CTL) is being impeded by three uncertainties: where oil prices are heading, what it actually costs to produce coal-derived fuels, and how greenhouse-gas emissions will be regulated. A domestic CTL industry could produce as much as 3 million barrels per day of transportation fuels by 2030. Having such an industry would yield important energy-security benefits, most notably a lowering of world oil prices and a decrease in wealth transfers from oil users to oil producers. But establishing a large CTL industry also raises important policy and environmental issues associated with climate change, coal mining, and water consumption. Weighing both benefits and costs, it makes sense for the United States to pursue an insurance, or hedge, strategy that promotes the early construction and operation of a limited number of commercial CTL plants and that establishes the foundation for managing associated greenhouse-gas emissions, both in a way that reduces uncertainties and emphasizes future capabilities. This book reviews, in depth, the prospects of and policy, governance, and environmental issues associated with establishing a CTL industry in the United States. It includes analysis of the coal resource base and the technical, economic, and environmental viability of alternative approaches of moving forward with CTL production, including the Fischer-Tropsch method, the methanol-to-gasoline method, and methods that combine coal and biomass. To understand how unconventional-fuel production changes world oil prices, a model of the world oil market is used to account for a range of responses by the Organization of the Petroleum Exporting Countries to additional CTL production. The authors also evaluate alternative incentives that the government can apply to promote early commercial CTL experience.
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