Coal Liquification Mandates Higher Electricity Prices

So the blog'o'sphere is abuzz with discussion of a New York Times piece by Edmund Andrews about proposed subsidies for Fischer-Tropsch production of benzene from coal in order to fuel oversize pickups. Call it the antithesis of demand-side management. Generally speaking the idea of large scale F-T coal-to-liquids is a program that makes corn ethanol look like a model of efficiency.

For one thing, I don't see how this adds to the USA's energy security. The F-T process is a net energy loser, and it's not like the USA is a major coal exporter. According to the Energy Information Administration statistics on coal the USA exports about 50 Mtons of coal, imports 30 Mtons, and produces about 1200 Mtons. This means the USA's net coal exports only amount to 1.7 % of total production. While the USA may have the worlds largest coal reserves, historically coal reserve numbers haven't proven to be very accurate and it certainly doesn't look like there's a lot of spare capacity.

This also puts paid to the fig leaf of carbon dioxide sequestration. While coal-fired electricity can claim they are working on sequestration, F-T fuel really can't sequester their product, only the inefficiencies in producing it. As such, they will make themselves even more vulnerable to acquisitions accusations that they are cooking the planet then they already are.

So it would seem that the proposal is to trade away the USA's self sufficiency in electricity production in order to slightly reduce oil imports. What's more important, fueling your car or heating your house? Of course, coal executives don't care about the average consumer, they care about their profits. However, I'm not sure why the American taxpayer should subsidize this. What do the American people get from this? A quote from the NY Times article is illustrative:

But coal executives anticipate potentially huge profits. Gregory H. Boyce, chief executive of Peabody Energy, based in St. Louis, which has $5.3 billion in sales, told an industry conference nearly two years ago that the value of Peabody’s coal reserves would skyrocket almost tenfold, to $3.6 trillion, if it sold all its coal in the form of liquid fuels.

So what's the obvious side effect here? Higher electricity prices, obviously. The cost of coal constitutes about 50 % of the cost of coal-fired thermal electricity generation. Hence, if the value of coal shoots up by a factor of ten as suggested the price of coal-fired electricity should go up 5-fold. The coal executives would be giveing a gift to their competition. Nuclear, wind, and solar power would quickly become more competitive and start to displace coal-fired generation. The last thing the coal industry should logically want is to encourage the installation of more wind and solar power; these industries have learning rates that will eventually push their cost below that of coal. Why would an coal executive hasten that? One can certainly imagine that if enough coal is displaced, the price will again crash. Hence they coal executive might in the end have all the coal they want to produce F-T benzene. This is assuming their corporations survive the roller-coaster ride they are setting themselves up for and don't go bankrupt.

Update: From the NY Times, Science Panel Finds Fault With Estimates of Coal Supply. -cough- Coal reserve estimates inaccurate? I'm shocked.