Assuming there really is such a thing as "clean coal," its future is looking increasingly bleak, according to After Washington Pulls Plug on FutureGen, Clean Coal Hopes Flicker in today’s Wall Street Journal. The WSJ describes the impact of DOE Secretary Samuel Bodman’s Jan. 30 decision "yanking its support for the project, whose price tag had ballooned to $1.8 billion, nearly double original estimates." The WSJ adds, "the nation could face supply shortages in coming years unlike anything seen in the past" without new coal plants and if "nuclear power also stumbles."

Senate Majority Leader Harry Reid had a somewhat different perspective last week. As reported in Platts, Senator Reid stated that, "I think the coal companies should be upfront with the American people that coal is one of the things that is ruining our world." Reid added:

The coal industry around the country is spending tens of millions of dollars to give false and misleading information to people around the country saying ‘all we want to do is have clean coal. Why won’t they let us do the clean coal’…My answer to that is that is doesn’t exist. There is no clean coal technology. There’s cleaner coal, there’s no clean coal technology.

Senator Reid doesn’t expect zero-emissions coal fired generation to be available for another twenty years and says we should "just back off" and look to cleaner energy sources like natural gas and renewables.

The key lesson of the FutureGen story, as well as past government attempts to pick winners (such as synfuels during the Carter and Reagan administrations), is the need to internalize the costs of CO2 emissions from burning fossil fuels in the price of energy via a carbon tax. With a carbon price, consumers and power producers could make rational economic choices to use less energy and substitute less carbon-intensive fuels for coal. Coal would lose its artificial competitive advantage, the economics of renewable energy would improve dramatically, and even more energy efficiency would become cost-effective. Who knows, even zero-emissions coal might become available — eventually.

Photo: Zach K / flickr

Google Inc. has a new project, Renewable Energy Cheaper Than Coal. Google is preparing to bet megabucks, mega-engineers and its cutting-edge reputation on its ability to propel solar thermal power, wind turbines and other renewable electricity up the innovation curve and under the cost of coal-fired power, Reuters reported Tuesday.

"Our goal is to produce one gigawatt [1,000 megawatts] of renewable energy capacity that is cheaper than coal. We are optimistic this can be done in years, not decades," said Larry Page, Google’s co-founder and president of products, according to Reuters.

To which we at the Carbon Tax Center say: Good luck, and don’t forget to hire the lobbyists. You’re going to need them to help win a carbon tax, ’cause without the tax, your goal of renewable energy cheaper than coal is likely to remain out of reach.

Don’t look to "market forces" to jack up the cost of coal-fired power. Unlike the 1970s, when the price of coal marched in lockstep with skyrocketing oil, coal prices are stuck in a proverbial peat bog. The national average coal price so far this year, $1.77 per million btu, is barely higher in nominal terms (and 40% less in real terms) than the 1982-1985 plateau of $1.65. The resource is abundant, mining technology is technically mature (if socially and ecologically devastating), and there’s barely a mine workers union to speak of. The power plants themselves are no harder to build, even with SOx and NOx scrubbers, than my kids’ Harry Potter lego’s, they just take a few years longer.

Coal-fired power isn’t about to get much more expensive by itself. Are renewables going to get much cheaper? Arguably not — at least not enough to win Google’s bet.

What about electricity from wind, my personal favorite energy-supply source and one for which I’ve done my share of advocacy? Wind power has gotten fabulously cheaper over the past two dozen years, as this DOE cost curve attests. But the rate of decline has slowed. Past advances — taller towers to capture higher wind speeds, larger blades to sweep larger areas, gearing to grab every available erg — appear pretty much tapped out. Further declines in wind costs will be incremental, not quantum. And to compete toe-to-toe with coal as baseload power, wind will need a support system of storage and transmission that will only add to its per-kWh cost.

Photovoltaics have more cost-cutting ahead but are starting from a much higher cost plane. I’m less up to speed on solar-thermal, but I suspect it sits somewhere between wind and PV — cheaper than PV now but with less scope for innovation. The bottom line, then, as I see it, is that coal will continue to undercut renewables in cost for the foreseeable future.

Unless a price is put on coal’s head.

An average kilowatt-hour from a coal-fired power plant sends 2 pounds of CO2 into the atmosphere. A megawatt-hour (1,000 kWh) puts up a ton. Charge $10 a ton of CO2 (or $37 a ton of carbon — precisely what we at the Carbon Tax Center recommend as the yearly increase in a phased-in tax) and you lift the price per coal-fired kilowatt-hour by one cent. If the gap between wind power (sans the federal Production Tax Credit) and coal power is conservatively put at 4 cents/kWh, then $40/ton of CO2 ought to give Google its Holy Grail.

There’s already a couple of carbon tax bills rattling around the House Ways & Means Committee. The Larson bill (that’s John B. Larson of Connecticut, a member of the Democratic leadership) calls for $15/ton of CO2 in starting in 2008, with the level increasing by 10% annually along with an additional inflation-offsetting adjustment. That could bring wind halfway to parity with coal in just a few years.

Hiring genius engineers and pouring Google’s coffers into renewables are terrific moves. But nothing beats getting the prices right. Earth to Google: start pulling for a carbon tax.

Rising Global Demand for Oil Provoking New Energy Crisis according to today’s New York Times. Yesterday’s front page of the Wall Street Journal headlined As Energy Prices Soar, U.S. Industries Collide.

Why not just rely upon high gasoline prices to bring down demand instead of “adding insult to injury” with a carbon tax?

One reason is that high gasoline prices alone are not enough to reduce consumption of gasoline and the resulting carbon dioxide emissions. Consumers, whether businesses or households, need a clear price signal that future prices are going to remain high before they are motivated to make the investment decisions necessary to reduce consumption. The volatile gas prices of the last few years just don’t provide that kind of signal. The rising global demand for oil headlined in the Times story is faster in developing countries, but as the Times correctly noted, “Americans’ appetite for big cars and large houses has pushed up oil demand steadily in this country, too.” The problem is that while it may be a rational economic decision to invest in a more efficient car, house, truck or airplane if gas prices are expected to remain at or above current levels, the economic decision-making is very different if consumers believe prices may plummet in two months. Europe has had considerably higher gasoline prices for many years and, not coincidentally, Europeans generally drive much smaller and more efficient vehicles.

While volatile prices do not encourage investment in efficiency, a clear and certain trajectory of increasing carbon taxes would do so. The revenue-neutral carbon tax proposed by the Carbon Tax Center provides that clear price signal. And, the gradual trajectory of increased prices that we propose gives consumers time to adjust to the higher prices by both investing in efficiency and making behavioral changes that will further reduce energy use. For more on how consumer demand for gasoline responds to price, see our issue paper by clicking here.

Another important reason why a carbon tax continues to be essential even with high oil prices is that the goal of a carbon tax is to reduce carbon dioxide emissions, not just to reduce consumption of gasoline. Generation of electricity accounts for approximately 40% of carbon dioxide emissions , compared to about 21% from gasoline and 4% from aviation. Two-thirds of the emissions reductions from a carbon tax are expected to come from the electricity sector, 11% from gasoline and only 1% from aviation. Coal use is increasing and will continue to increase without a price signal that reflects the harm caused by carbon dioxide emissions from coal-fired electric generating plants.

In addition, high oil prices encourage the development of new sources of energy with huge carbon dioxide emissions such as the Alberta oil sands projects. Tar sands development is the single largest contributor to the increase in climate change in Canada according to Greenpeace Canada. Even worse, according to a study by the Sage Centre and World Wildlife Fund-Canada, "voracious water consumption by Alberta’s oilsands threatens the quality and quantity of water available to Saskatchewan and the Northwest Territories through the Mackenzie River system." In fact, today’s New York Times cites a new study finding that "[h]igh levels of carcinogens have been found in fish, water and sediment downstream from Alberta’s huge oil sands projects." A carbon tax would reduce the economic incentive for such projects by holding down the price of oil. A carbon tax actually applied to such projects would destroy their economics.

Finally, right now the high oil prices are enriching oil producing countries and oil companies and causing severe damage to the United States economy. A revenue-neutral carbon tax will reduce demand and lead to reduced prices for the oil itself. The results? Reduced carbon dioxide emissions, less money going overseas and to big oil companies, carbon tax revenues returned to all Americans and strengthening our economy, and increased national security as we reduce our dependence on foreign oil. Win-win-win-win!

[To see a summary of recent Carbon Tax Center activities, see A Convenient Tax – Issue #3 immediately below.]