Crunch time for Hitler's fuel

NEW YORK (CNNMoney.com) -- OK, so right away the headline puts a negative spin on "liquid coal" technology.

Plenty of other nations have turned coal into a liquid that's essentially diesel fuel, only one made from coal rather than oil. Such as Imperial Japan. And apartheid South Africa.

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It's a fact the fuel's critics love to highlight. But as "coal-to-liquid" supporters scramble to get their product covered under the various alternative energy bills moving through Congress - in a bid to win generous subsidies, federal contracts, loan guarantees and other government support - proponents are pointing to the many benefits of this often unloved alternative fuel.

The technology, developed in coal-rich Germany in the 1920s and used heavily by the Nazis in World War II, involves partly burning coal to turn it into a gas, then using a catalyst, usually a metal, to make it a liquid.

During the process some pollutants like sulfur can be removed, and particulates, nitrous oxide and carbon monoxide can be reduced, making liquid coal cleaner burning in some ways than oil-based diesel. It's also possible to remove some of the carbon dioxide, one of the main greenhouse gases cited as a cause for global warming, but that involves additional steps.

U.S. companies working in the field include Oklahoma-based Syntroleum (Charts), Rentech (Charts) in Colorado and Utah-based Headwaters (Charts).

According to the Department of Energy, oil needs to remain near $50 a barrel for liquid coal to be cost competitive.

Its biggest selling point: the huge amounts of coal in the United States, and the desire for a new energy source to wean us away from oil. The downside? Questions linger over how clean the technology is, as well as its cost.

Lawmakers are currently weighing all these issues as they craft energy legislation in this era of high oil prices, terrorism fears, and growing concerns over the potentially disastrous effects of unchecked global warming.

Even if the country started using coal to fuel our cars, "You're still talking about coal for generations of Americans," said Corey Henry, spokesman for the Coal to Liquid Coalition, noting that the United States has 240 years worth of proven reserves given coal's current uses, mainly to make electricity.

The attraction of using a plentiful domestic energy source is obvious. It would help cut our reliance on oil, about a quarter of which comes from the Middle East and Venezuela.

It also keeps money stateside, flowing to coal miners instead of countries with links to terrorists, which explains why the coalition's members include several labor unions.

"Coal to liquid fuels are affordable, domestic, secure and clean," said Henry. "It's a massive resource that we are not tapping to its full potential."

But it's only the domestic part of that statement that doesn't spark debate.

Henry said that "carbon storage" - an untested technology where about half the carbon dioxide in coal is removed and injected underground - can make liquid coal so that it emits 60 percent less carbon dioxide than gasoline.

"This statement is total garbage," said Pete Altman, coal campaign director at the National Environmental Trust, saying the study Henry was referring to compared a hybrid diesel engine to a gasoline engine.

Altman and some other experts said they thought it was unlikely liquid coal would yield much benefit when it comes to cutting carbon dioxide emissions.

Robert Wright, a project manager with the Department of Energy working on coal issues, said carbon emissions with liquid coal are about the same as regular diesel - but only if a big chunk of the carbon dioxide is removed during production.

Altman also said the fuel was expensive to make - a recent wire story put the cost at $840 a barrel for coal-based jet fuel, for example, eight times higher than oil-based fuel - and required vast amounts of water during production, about 16 gallons for every one gallon of fuel.

"Congress has funded this boondoggle before," Altman said, referring to the 1970s-era government-backed entity called Syngas Corp. that was eventually scaled way back and sold when oil prices retreated.

But DOE's Wright didn't have such a pessimistic outlook. He said coal could be turned into a liquid fuel at a cost of about $40 to $50 a barrel, although that number does not include carbon capture. Water is eventually returned to the source in one form or another, he said, and is not polluted during the manufacturing process.

Coal fuels have so far been left out of the Senate biofuels bill, which would mandate that the nation's fuel mix contain 36 billion gallons of renewable fuel by 2022, up from 8.5 billion gallons in 2008 - numbers sure to put a dent in the nation's 140 billion gallon-a-year gasoline habit.

The bill is expected to make it to the Senate floor in the next few weeks, and both Democrat and Republican staffers say a Republican sponsored amendment allowing for liquid coal is likely.

Other bills provide loan guarantees for companies building coal-to-liquid plants, which typically cost $3 billion to $5 billion apiece, as well as guaranteed price support if oil falls below $40 a barrel.

It seems clear the industry needs government help to succeed. Lawmakers have to decide if they are willing to fund a fuel that appears to do little to cut greenhouse gases.