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Coal Gasification Gets Real

The technology works, but public policy will dictate its future.
Fortnightly Magazine - January 2005

the late 1970s to $4 billion in the late 1990s.

Moreover, as a percentage of U.S. energy revenues, R&D spending is miniscule compared to the R&D commitments of other major industries. The Margolis and Kammen report showed that the energy industry spends less than 1 percent of its revenues on R&D, while industries like telecommunications, healthcare, and pharmaceuticals spend more than 10 percent.

The main culprit seems to be a combination of market competition and political priorities. In short, private companies won't invest in R&D unless it has a chance of translating into greater profitability. But the power industry's research priorities focus mostly on achieving societal goals, such as environmental stewardship and energy security. Investments toward such goals yield no profit for private companies, so achieving them requires government intervention-either through regulatory incentives or direct monetary support for R&D efforts. Both types of intervention, however, are problematic in the context of budget constraints and political realities.

The Bush administration's Future Gen initiative is a prime example. Future Gen envisions an emissions-free, coal-fired power facility being built in the next 10 years, combining R&D efforts in gasification, hydrogen separation, fuel cells, carbon sequestration, and other technologies. In the face of competing budget priorities, however, the Future Gen project has been sidelined despite the president's support for it.

"Future Gen is needed for the future of the industry, but it has been struggling to get research funding," says Stu Dalton, a director with EPRI. For the 2005 budget, Congress deferred funding Future Gen for another year, and it directed to the DOE to keep it on life support using existing clean-coal technology funds.

Finding a Better Way

Given the political difficulties of government R&D funding, politicians frequently cite the need to unleash the power of private-sector innovation to advance technologies for the public good. Indeed, free-market solutions often result in creative and cost-effective answers to public-policy questions. But under the , policy-makers aren't asking the right questions.

For example, the Environmental Protection Agency (EPA) effectively is discouraging private investments in clean-coal technologies by weakening environmental enforcement and relaxing New Source Review policies for repowering projects. And in state capitals across the country, regulatory regimes discourage utilities from investing in R&D.

"Utilities earn an allowable rate of return from a repowered plant, but they don't earn a rate of return for R&D," says Michael Zimmer, a partner with Thompson Hine in Washington, D.C. "It's an expense that does nothing to enhance the rate base, so utilities can't make the investment."

In spite of such challenges, private companies continue making important contributions, particularly when they combine their efforts. EPRI, for example, recently formed a coalition of nearly 20 companies to support the institute's research on commercializing clean coal and carbon sequestration technologies. The initiative focuses less on the technologies themselves than on the regulatory, engineering, and market barriers that prevent those technologies from being implemented.

"There is inertia in human events just as there is in physics," Dalton says. "We see momentum in industry-led coalitions pulling together to make things happen. Government can't lead everything. The