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Obama Revamps $8 Billion Coal Program as Climate Plan Faces Fire

July 03, 2013

Obama Revamps $8 Billion Coal Program as Climate Plan Faces Fire

Deck hands walk along barges making sure lines are tight on a towboat that makes it's way along the Ohio River with 15 barges loaded with 30,000 tons of coal. Photographer: Ty Wright/Bloomberg

Under fire from coal producers and lawmakers from coal-producing states, the Obama administration is revamping an $8 billion federal loan-guarantee program to help companies reduce their carbon dioxide emissions.

The plan announced yesterday is part of a broader strategy for dealing with the risks of climate change that President Barack Obama unveiled last week. His policy relies on cuts to carbon emissions at new and existing power plants that will probably reduce coal use in the U.S.

Republicans and coal-industry executives say the effort will cost jobs in states such as Kentucky and Ohio where coal is produced and provides relatively cheap power to manufacturers. U.S. Energy Secretary Ernest Moniz said yesterday the new effort on loan guarantees shows the administration isn’t anti-coal.

“The issue here is to prepare for the future, a future in which coal is in fact part of the mix,” Moniz said in a conference call with reporters.

Electric utilities are responsible for about 40 percent of U.S. greenhouse gas emissions, with coal accounting for the bulk of the carbon dioxide released. Most scientists say carbon emissions are contributing to a warming of the planet. Obama said in a June 25 speech at Georgetown University that mitigating the threat is one of his second-term priorities.

“I don’t have much patience for anyone that denies that this challenge is real,” Obama said. “Sticking your head in the sand might make you feel safer but it’s not going to protect you from the coming storm.”

Coal War

The speech revived accusations from coal advocates that Obama is waging a “war on coal.” The industry had sought to popularize that refrain in swing states that produce coal during the 2012 presidential campaign, without much effect. Obama won in Ohio, Virginia and Pennsylvania, where coal producers targeted much of their efforts.

Christopher Bosso, a political science professor at Northeastern University in Boston, said the federal aid to the coal industry could help protect Democrats who are facing election in 2014 in coal-centric states.

“I think that all Obama and his energy secretary can do is try to hunker down and make the argument that they are making,” said Burdett Loomis, a political science professor at the University of Kansas in Lawrence.

The National Republican Senatorial Committee cited Obama’s climate-change plan in a July 1 news release criticizing Alison Lundergan Grimes, a Democrat who is running for the U.S. Senate in Kentucky against incumbent Republican Minority Leader Mitch McConnell.

‘Legacy Issue’

“The president views this as a legacy issue, and on this point he and I agree,” Mike Duncan, the president of the American Coalition for Clean Coal Electricity, said in speech on June 26. “But that legacy is going to be higher energy costs, less reliable electricity, lost jobs and a shattered economy.”

Federal loan guarantees are intended to quiet objections to Obama’s climate plans, said Michael McKenna, a Republican political strategist and lobbyist with MWR Strategies Inc. in Midlothian, Virginia.

The money can “help those who care about coal pretend that this administration can be negotiated with,” McKenna said in an e-mail.

He said carbon-capture technology hasn’t been shown to be economically efficient.

“We’re encouraged that the administration recognizes the need to develop carbon-capture and storage” Lisa Camooso Miller, a spokeswoman for the clean-coal group, said in an e-mail.

Carbon Capture

The Energy Department seems to acknowledge the difficulty it has had in finding carbon-capture projects worthy of U.S. backing in its revamped plan. Congress first gave the department the authority to issue as much as $8 billion in U.S. loan guarantees to clean fossil energy projects in a 2005 law.

In 2008, the department solicited proposals for clean coal projects. It hasn’t touched the money.

The new plan expands eligibility to proposals that reduce emissions from oil and gas drilling, and for energy-efficiency efforts such as capturing waste heat from large industrial facilities to make electricity. Clean-coal projects also remain eligible for aid.

To get a guarantee, companies backing projects would have to pay a credit subsidy fee to the U.S. as a hedge against default. Coming up with the credit subsidy costs remains a hurdle for most companies, said Christine Tezak, an analyst at ClearView Energy Partners LLC in Washington.

Natural Gas

“The economics on clean coal is still very difficult given modestly priced natural gas,” Tezak said in an e-mail. Of the new loan guarantee announcement, she said: “It certainly seems intended to blunt the ‘war on coal’ criticism.”

The Natural Resources Defense Council, which supports Obama’s climate push, said reducing carbon dioxide emissions doesn’t need to cost jobs.

According to a report written by a pair of NRDC staff members released yesterday, cutting emissions could result in a net increase of 210,000 jobs as workers install carbon-capture technologies, efficiency systems and clean-energy projects.

Paul Bledsoe, a former White House aide under President Bill Clinton who specialized in climate-change issues, said politics aren’t the administration’s only reason for trying again to find worthy clean-coal projects.

While coal use has fallen in recent years as utilities switched to cheaper, and cleaner, natural gas prices, coal still accounted for about 38 percent of the electricity produced in the U.S. in 2011, more than any other fuel, according to the Energy Information Administration.

Coal Dependence

China and India both rely even more heavily on coal as they try to meet the needs of their expanding economies.

“For both political and policy reasons, Democrats have been trying to find a way to get clean coal into the long-term energy mix,” said Bledsoe, who’s now a senior fellow for energy and climate at the German Marshall Fund of the United States, a Washington-based group that seeks to strengthen transatlantic cooperation. “Not only because the U.S. needs it, but primarily for use in developing countries over time.”

To contact the reporter on this story: Jim Snyder in Washington at jsnyder24@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net


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