WASHINGTON — The tax-cut bill that the House of Representatives passed early Friday does more than prevent taxes from going up next year. It also provides some energy tax breaks, including a subsidy for producing liquid coal.
Environmental groups oppose the subsidy because of its impact on climate change. Making a liquid fuel from coal adds twice the global warming pollution to the atmosphere as gasoline does because it requires so much energy to produce.
The coal industry supports the measure, saying it would help build a coal-to-liquid fuel industry that would displace some foreign oil and ensure a growing market for coal.
The liquid coal subsidy was inserted during the tax-cut negotiations between President Barack Obama and Senate Republicans. Other energy provisions of the bill extend subsidies for corn ethanol and tax credits for renewable energy producers and for energy-efficiency provisions for homes.
The liquid coal provision would revive a tax subsidy that expired at the end of 2009. It would provide tax credits of 50 cents per gallon of the fuel until Dec. 31, 2011.
The U.S. has no commercial liquid coal plants, but the Sierra Club has tracked proposals for them in many states, including Kentucky, Alaska, Wyoming and Ohio.
To use the tax credit, the fuel would have to come from a plant that captures and stores 75 percent of its carbon dioxide emissions from producing the fuel.
Carbon capture and storage is still expensive and not commercially used. Even if it's developed, a 75 percent capture rate would still mean that emissions of greenhouse gases from liquid coal are higher than the emissions from gasoline production, said Alex Moore of Friends of the Earth, who campaigns against liquid coal.
The Department of Energy is working on projects to bring the costs of carbon capture and storage down to a level that would make it commercially viable.
Liquid coal is only expected to be cost-competitive in the U.S. if the price of oil increases.
"We're pleased that the Senate, at least, recognizes the potential to derive transportation fuels and a variety of other fuels from the world's biggest coal reserves, here in the United States," said Luke Popovich, a spokesman for the National Mining Association and its Coal-to-Liquids Coalition.
"There's a recognition here that we have the potential to greatly lessen our dependence on offshore oil," he said.
Bill Bissett, the president of the Kentucky Coal Association, said the tax credit is welcome because it could lead to expanded use of coal, and that "brings new opportunities and positive growth to Kentucky." Two liquid coal plants have been proposed in the state.
It takes a lot of coal to make liquid fuel. Friends of the Earth said that replacing 15 percent of the nation's projected gasoline demand for transportation with liquid coal would result in a 40 percent increase in coal mining.
Environmentalists are dismayed that the liquid coal provision got into the compromise bill, said Lena Moffitt, a clean fuels campaigner at the Sierra Club, adding, "If you're going to get behind clean energy, you simply can't be incentivizing these kinds of dirty fuels."
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