The Wall Street Journal-20080202-After Washington Pulls Plug on FutureGen- Clean Coal Hopes Flicker

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After Washington Pulls Plug on FutureGen, Clean Coal Hopes Flicker

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The crippling blow dealt this week to FutureGen, the U.S. government's marquee effort to develop a "clean coal" power plant, will make it harder for the utility sector to slash carbon-dioxide emissions and keep coal in the mix over time as a cheap electricity source. It could also help push the nation toward greater reliance on nuclear power.

On Wednesday, Energy Secretary Samuel Bodman said the Bush administration was yanking its support for the project, whose price tag had ballooned to $1.8 billion, nearly double original estimates. Energy Department officials said it was time to confront the cost issue, before equipment was ordered. Clay Sell, deputy energy secretary, said the easier, less-responsible path would have been to pretend everything was fine "and then when the thing went south, I could have blamed the next administration for failing to bring this good idea to fruition."

Members of the FutureGen alliance, consisting of a dozen or so coal companies and utilities from around the world, said they will take their case directly to Congress. "This is not the end game," said Michael Morris, chief executive of American Electric Power Co., a leading member of the FutureGen Industrial Alliance. "Clean coal is essential."

The plant "was to have been the prototype for the next generation of clean-coal plants around the world," said Scott Smith, AEP's representative on the FutureGen board. Its technology would have been shared with consortium members, including China's largest coal-burning utility, China Huaneng Group, which has been criticized for its CO2 emissions. China, the biggest coal-consuming nation alongside the U.S., has been criticized for its massive increase in carbon dioxide emissions.

States competed vigorously for the privilege of hosting the plant, which would have turned coal into hydrogen-rich synthetic gas for generating electricity while pumping CO2 underground for permanent storage. A federal site in Mattoon, Ill., won the contest, edging out another site in Illinois and two in Texas.

FutureGen board members said they'd been in discussion with the Department of Energy about ways to restructure the deal. The board offered to split the cost of any overruns, a burden that otherwise would have fallen squarely on the federal government. Under the original terms, a nonprofit industry consortium was to bear about $400 million of costs.

The industry is now left to consider how it will both increase its ability to generate electricity while at the same time create power that does less damage to the environment. Experts say it's critical for the U.S. to find ways to use coal that don't result in massive releases of CO2. Coal is America's most plentiful domestic fossil fuel. About 90% of domestic production feeds utilities, making the mining industry dependent on finding a solution, too.

Currently, the U.S. gets more than half its electricity from coal- fired plants and its dependence has grown greater, in recent years, due to coal's ability to compete effectively with costlier electricity from natural gas-fired plants. But the emissions are regarded as a significant factor in rising carbon levels that contribute to climate change. Experts say there is no way the U.S. will be able to meet a targeted 80% reduction in CO2 levels below 1990 levels by 2050 -- the goal of major legislation favored by several presidential aspirants -- unless it develops benign ways to burn coal.

Last year, plans for more than 50 conventional coal-fired plants were canceled or delayed due to concerns about the environmental impact or through fear that carbon legislation is coming that could make their output uneconomic. The federal government has repeatedly held out the promise that technologies would be developed to clean up coal.

"People don't understand the magnitude of the problem," said Howard Herzog, principal research engineer for M.I.T.'s Carbon Capture and Sequestration Program. "How can we do hundreds of these plants by 2050 -- and that's what we'll need -- if we can't even do one?"

If progress on clean-coal technology isn't made soon, AEP's Mr. Morris said, "we'll have to move nuclear up the ladder." Indeed, the nuclear-power industry is already experiencing an unlikely rebirth in part because it is seen as a cleaner alternative to other electricity sources.

To date, five utilities have submitted applications to the Nuclear Regulatory Commission for permission to build nuclear plants, adding to the 104 already in operation. But nobody expects them to be cheap and cost estimates already have caused two companies to pull back, Scana Corp. and Berkshire Hathaway Inc.'s MidAmerican Energy Holdings.

If nuclear power also stumbles due to cost concerns, the nation could face supply shortages in coming years unlike anything seen in the past.

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Jeffrey Ball contributed to this article