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PO Box 1070, Frankfort, KY 40602  Phone 502.875.2428, Fax 502.875.2845

KRC's Testimony Before House A&R Committee On Climate Change and Coal-To-Liquids  Posted: July 1, 2007

Statement of Tom FitzGerald Before the House Appropriations and Revenue Committee Concerning Climate Change And Coal-To-Liquid Incentives

Mr. Chairman, members of the Committee, I’m Tom FitzGerald, Director of the Kentucky Resources Council, Inc. The Council is a nonprofit environmental advocacy organization providing legal and technical assistance to low-income individuals, communities, and community groups concerning natural resources and energy issues. I’ve been a fixture around these halls since 1978 and I appreciate the invitation to appear before you today.

Since 1984, we have provided environmental policy, legal and strategic assistance to groups, focusing on representation of those who cannot afford representation. We are not affiliated with any political party, and have been critical of administrations and initiatives across the political spectrum when those policies fall short in protecting the health and quality of life of Kentuckians.

My perspective is tinged by the fact that I represent those who live downhill, downwind, and downstream – those who are most likely to feel the brunt of energy policy decisions that don’t fully account for the “footprint” – the impact of extraction, beneficiation, and utilization of energy sources and disposal of resulting wastes and management of emissions or discharges.

Mr. Chairman, over the years I’ve been accused of many things, but yesterday’s statement from the Governor’s office takes the cake. I can assure the committee that KRC’s concerns regarding the lack of necessity for the proposed special session are not motivated by a “desire to see casino gambling in the state,” but instead on the lack of consensus among legislators and stakeholders and between the General Assembly and the Administration on the direction and components needed for responsible energy policy, and on a lack of urgency in crafting new incentives to lure coal-to-liquid projects to the state when three of the four companies identified by the Administration had already represented in applications for grants that they were planning to build those projects in Kentucky, and when the feasibility phase of the projects is not yet completed. I have provided staff with copies of those agreements and grant applications, for your reference. And I have little doubt that, if and when a feasible project is presented to the General Assembly that is fiscally sound and environmentally responsible, it will receive positive reception.

On February 13 of this year I appeared before you with House Majority Floor Leader Adkins and UK President Lee Todd, and endorsed the House Committee Substitute to House Bill 5. The House Committee Substitute significantly increased the availability of incentives for renewable energy and lowered the thresholds for eligibility. The opportunity to secure the incentives for expanded deployment of renewables provided in the committee substitute was an investment on behalf of our environment and on behalf of Kentucky’s electric power ratepayers. Smaller, distributed generation of renewables offer an important opportunity for Kentucky’s utilities to defer new substantial capital investments in base load and peaking plants by utilizing available smaller renewable capacity to address peak demands, thus postponing the need for new capital investment while the nation determines the approach to addressing carbon dioxide (CO2).

In my comments, I made two other points.

First, I noted KRC’s concerns about the environmental impacts of coal-to-liquid processes, while acknowledging that attracting to Kentucky more of the research and development (R&D) that is ongoing in this area would be advisable. KRC stressed that the full life cycle costs of all of our energy choices needed to be analyzed and accounted for in our policy and investment decisions.

The second, and the issue I was asked to address today, is the issue of climate change. I noted earlier this year that there were significant uncertainties in what form the inevitable carbon mandate will take, and in looking at any energy path, the ability to capture and sequester carbon dioxide and to minimize other pollutants over the life cycle of a fuel will drive our energy choices.

In the intervening months since I was last here, there has been continued movement and growing consensus towards a national policy response to climate change and specifically, towards a mandatory program of controls on emissions of greenhouse gases from fossil fuel utilization.

In June 2005, the U.S. National Academy of Sciences joined with the scientific academies of ten other countries in stating that:

the scientific understanding of climate change is now sufficiently clear to justify nations taking prompt actions.

Just as the overwhelming weight of the scientific community acknowledges that climate change is occurring and that the increase in concentration of carbon and other greenhouse gases is responsible for that trend, there is growing consensus in the business community and government on the need to reduce greenhouse gases in order to minimize the coming consequences of warming that will follow emissions already released into our atmosphere.

I would like to acknowledge with appreciation that Ford Motor Company, an important part of the economic landscape of this Commonwealth, yesterday joined with the Chrysler Group in joining the United States Climate Action Partnership, which is a group businesses and six of the nation’s leading environmental organizations that have issued a collective call for the federal government to swiftly enact legislation that includes mandatory significant reductions of greenhouse gas emissions from all sectors through a mandatory market-based cap-and-trade system. Members include Duke Energy, GM, GE, Ford, Alcoa and Alcan, and many others.

There is general agreement within the scientific community, that emissions of greenhouse gases should be reduced by 60-80% by mid-century to minimize irreversible effects of climate change. There is also general consensus that we have a relatively brief period in which to restructure the manner in which we produce and consume energy, before the exigencies of climate change will impose dramatic costs on our communities and our economy and narrow our options to mitigate, rather than adapt, to climate change. In the CAP “Call to Action,” the CAP noted that

each year we delay action to control emissions increases the risk of unavoidable consequences that could necessitate even steeper reductions in the future, at potentially greater economic cost and social disruption. Action sooner rather than later preserves valuable response options, narrows the uncertainties associated with changes to the climate, and should lower the costs of mitigation and adaptation.

The CAP proposed a U.S. policy framework that includes

mandatory approaches to reduce greenhouse gas emissions from the major emitting sectors including emissions from large stationary sources, transportation, and energy use in commercial and residential buildings that could be phased in over time, with attention to near-, mid- and long-term time horizons;

flexible approaches to establish a price signal for carbon that may vary by economic sector and could include, depending on the sector: market-based incentives; performance standards; cap-and-trade; tax reform; incentives for technology research, development, and deployment; or other appropriate policy tools; and

approaches that create incentives and encourage actions by other countries, including large emitting economies in the developing world, to implement GHG emission reduction strategies.

I would encourage you each to read the “Call for Action” which is available on-line at www.us-cap.org, and also read the “Summary for Policymakers” of the first three Assessment Reports of the Intergovernmental Panel On Climate Change.

What are the implications for Kentucky?

The NAS has just released a report entitled Coal: Research and Development To Support National Energy Policy, which has a number of findings that are important to your work.

The NAS made these observations:

The context for any assessment of future coal production is inextricably linked with the development of a national carbon emissions policy. Potential constraints on greenhouse gases (especially CO2) emissions, and the technical and economic feasibility of CO2 control measures, are the dominant issues affecting the outlook of the future of coal use over the next 25 years and beyond. The difficulty of predicting prices and availability of alternative energy sources for electric power generation provides additional uncertainty.

If coal is to continue as a primary component of the nation’s future energy supply in a carbon-constrained world, large-scale demonstration of carbon management technologies – especially carbon capture and sequestration (CCS) are needed to prove the commercial readiness of technologies to significantly reduce CO2 emissions from coal-based power plants and other energy conversion processes. In addition, detailed assessments are needed to identify potential geological formations in the United States that are capable of sequestering large quantities of CO2, to quantify their storage capacities, to assess migration and leakage rates; and to understand the economic, legal and environmental impacts of both near-term and long-term timescales.

Reflecting that uncertainty, the NAS provided a range of projected coal use in the next 15 years from 25 percent more to 15 percent below 2004 levels, and from 70 percent higher to 50 percent lower by 2030.

The NAS panel also critically assessed the oft-stated claim that our nation has 250 years of coal supply, noting that the present estimates are based on methods that have not been reviewed or revised since 1974, and may be significantly overstated. The NAS recommended a coordinated federal-state-industry initiative would be important to determine the magnitude and characteristics of recoverable coal reserves.

Members of the Committee, I believe that we would do well to read the signs and to heed the observations of the MIT Study on the Future of Coal and the NAS Report. We should not invest public monies in supporting deployment of fossil fuel based technologies unless carbon emissions are addressed in order to move us towards the reductions needed to mitigate climate change.

Investment in R&D for large-scale demonstration of carbon capture and sequestration (CCS) as part of a larger, balanced portfolio of investments in renewable energy and energy efficiency, is a more prudent course than underwriting the commercial deployment of the current CTL technology that provides neither efficiency nor a carbon solution. Some refined variant of coal-to liquids may be part of the energy future, if the process can be made more efficient and carbon capture and disposition can be achieved.

Kentucky is well positioned to expand the production and use of hybrid and electric vehicles, as well as to encourage research and development of new fuels. We need to engage our major automakers in discussion of how we can harness our research capabilities to assist them in addressing carbon constraints in the transportation sector.

The last area I want to touch on is the one that concerns me most, both because of the people I represent and because it is the least talked about issue. Nationally, coal provides around 49% of the nation’s electricity. In Kentucky, it is between 97 and 98%. What has historically been our strength is becoming, in a carbon-constrained future, our vulnerability. The inevitable mandatory program for emissions reductions will hit hard on Kentucky’s ratepayers, as our regulated coal-fired power plants are obligated to internalize carbon costs, either by retrofitting the existing fleet to capture and sequester carbon, or to purchase carbon credits, or to deploy new base-load plants that offer more efficiency or more effective carbon capture. The sticker shock, and the potential adverse effects on the most vulnerable ratepayers and on our economy, if we fail to plan and to invest in a strategy to reduce carbon emissions from the combustion of coal for electricity, will be staggering.

One of those areas in which state investment will help hedge against the impacts of a mandatory carbon reduction program is energy efficiency. Investment in improving efficiency of conversion and use of energy offers a way to “mine” inefficiencies in the way that power is generated and consumed. Kentucky’s electricity is relatively low-cost, but our bills certainly are not, because we consume power inefficiently. In 2005, there were 20 states with lower monthly residential electricity bills than Kentucky’s. In that year, Kentucky’s residential ratepayers consumed more electricity than our counterparts in 43 other states; our businesses, more than 19 other states and our industries, more than counterparts in 47 other states. Efficiency improvements are a key to creating a sustainable Kentucky economy, and generate good jobs, increase disposable income, keep money circulating in the state, and make our industries and products more cost-competitive in the world market. Reducing waste, upgrading building codes, creating incentives for energy efficient home construction and renovation, enhancing demand management programs to encourage utilities to invest in more efficient use of power by customers, and increasing weatherization programs, particularly for rental housing – all of these are bricks on the path to real energy independence.

I concur with Mr. Bartis that the other area in which targeted state investment would be prudent is in CCS research. Just as the DOE budget for carbon sequestration is extremely underfunded, the budgets of both the Center for Applied Energy Research and the Kentucky Geological Survey are in need of substantial augmentation. We cannot (and should not) try to go toe-to-toe with Illinois in throwing money after CTL plants that do not promise carbon reduction. We can and should strategically invest in improving our capacity for research and demonstration on CCS, particularly on retrofitting existing power plants to scrub and manage carbon emissions. We don’t need to build a new CTL plant to do that – we have an entire fleet of pulverized coal power plants and new ones proposed to come on-line with whom the state universities, CAER and KGS could partner to test carbon capture and sequestration at a commercial scale.

Mr. Chairman, I have for your review a chart showing the current bills before Congress on climate change. Not included in the chart is the newest bill, which was announced yesterday. Senators Lieberman and Warner will file a bill to replace the Lieberman – McCain bill, which had been seen as the leading climate change proposal in the Senate. The earlier bill called for 60% reduction in carbon emissions from the 2004 baseline, by 2050.

In closing, members of the Committee, there is no urgent crisis requiring a special session to create a package of new financial incentives for coal-to-liquid fuel plants. Instead, we should spend the interim “refining” HB 5 by working in a nonpartisan manner to craft a sound energy strategy that addresses energy efficiency in all sectors, and creates incentives for research, development and demonstration in CCS and in fuels and power supplies that reduce carbon emissions and other greenhouse gases.

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