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Welfare-Case Companies: Peabody, Rio Tinto, and Big Coal


Providing tax breaks for "clean coal" -- an oxymoronic concept -- is just another way to subsidize a dirty industry.

The Gulf of Mexico oil spill wasn't bad news for everybody. Coal executives, for instance, must have breathed a sigh of relief as they saw their industry challenged in its role as Environmental Enemy Number One, Energy Division.

After decades of controversy over the havoc created by coal-mining -- such as the disastrous 2008 rupture of a coal ash pond at the Tennessee Valley Authority's Kingston Fossil Plant in eastern Tennessee, which spilled 5.4 million cubic yards of sludge across 300 acres and left an estimated $1.2 billion clean-up bill, not to mention the grim impact of the industry's day-to-day operations on the health of mountains, rivers, and its own workers and their families -- leading US coal producers like Peabody Energy Corp (BTU), Rio Tinto Energy America (RTP), Arch Coal (ACI), and Massey Energy (MEE) were no longer top of mind when it came to talk about who was raping the earth most comprehensively.

Yet for all its bad press as a dangerous, dinosaur technology responsible for 25% of the world's carbon dioxide emissions, the coal industry and its major players have serious bipartisan political support in the United States and receive billions in tax breaks and subsidies from the federal government. Coal, and cleaner-burning refined coal, took home $3.3 billion in subsidies in 2007 alone.

While other developed countries such as Germany -- once seventh worldwide in coal production -- have shuttered their industry, eliminating subsidies in 2007 and planning a complete close-down of every plant by 2018, many American politicians consider coal to be the most patriotic of the fossil fuels, a "native fuel" and a key element in the political hot-button issue that is energy independence.

The States have the world's largest coal reserves: 27% of the Earth's known total. Properly exploited, proponents argue, it could greatly reduce American dependence on foreign oil. Sure, there's that whole planet-killing issue, but with potentially cleaner alternative technologies such as Carbon Capture and Sequestration (known as CCS, it's the biz's biggest buzz-word), liquid coal and others, the hope is that Americans can tap into their vast coal resources without choking to death in the process.

That's where the federal subsidies come in. The bulk of them ($14.1 billion out of a total of the $17 billion handed out to the industry between 2002 and 2008, according to a study by the Environmental Law Institute) are in the form of tax breaks and incentives to develop these alternative forms of coal extraction, processing, and consumption.

And despite the Obama administration's declared interest in reviewing fossil-fuel industry subsidies, there isn't any sign of the largesse truly slowing down, or at least there wasn't until the recent death of the American Clean Energy and Security act in the Senate this July -- which was a good thing according to Kyle Ash, senior legislative representative for Greenpeace USA in Washington: "ACES would have generated funding for fossil fuels over renewables at a ratio of almost nine to one."

Among the coal-friendly items that were in ACES, according to a 2007 report in the New York Times: "loan guarantees for six to 10 major coal-to-liquid plants, each likely to cost at least $3 billion; a tax credit of $0.51 for every gallon of coal-based fuel sold through 2020; automatic subsidies if oil prices drop below $40 a barrel; and permission for the Air Force to sign 25-year contracts for almost a billion gallons a year of coal-based jet fuel."

With such vast sums sloshing around, it's no wonder that players like Peabody Energy, the world's largest private-sector coal company (with 2009 sales of 244 million tons and $6 billion in revenues), are eager investors and partners in liquid-coal and CCS tech firms such as GreatPoint Energy, which is also backed by leading strategic investors such as AES (AES), Suncor Energy (SU), Dow Chemical (DOW), Kleiner Perkins, and Khosla Ventures. This March , Peabody bought a $15 million stake in Calera, a new-tech firm that specializes in converting captured carbon dioxide into building materials.

But are these technologies the future? Or are they just lucrative industry tax-breaks? Will there ever be such a thing as clean coal? Greenpeace's Kyle Ash tells Minyanville that CSS projects are "a dangerous waste of time, and an almost criminal misuse of limited public funding," while liquid coal is no reasonable observer's solution to climate change. Coal-to-liquid production creates nearly a ton of carbon dioxide for every barrel of liquid fuel, "and still generates the pollution when it's combusted."

Compare the federal handouts refined coal receives to those of other energy sources on a per-kilowatt-hour basis, he suggests: Refined coal gets $29.81 per megawatt hour, as opposed to carbon-reducing solar power ($24.34) and wind ($23.37). It makes no sense on a cost-effective level, let alone on an environmental one.

"Coal will always be a dirty energy," Ash says. "Whatever they do to coal before burning it, whether it is scrubbed or liquefied, does nothing to mitigate the catastrophic damage caused by coal mining that includes removing entire mountaintops, devastating rivers, and destroying the health of people who work the mines."

Still, the black stuff isn't going away any time soon, and neither will the lucrative incentives to clean it up, despite the failure of ACES: Coal currently produces 41% of worldwide energy, and will increase that share to 44% by 2030, the International Energy Agency forecasts. Meanwhile, Gregory H. Boyce, chief executive of Peabody Energy, told an industry conference in 2005 that the value of Peabody's coal reserves would skyrocket almost tenfold, to $3.6 trillion, if it were able to sell all its coal in the form of liquid fuels.

That's an ambitious -- if not quixotic -- goal, and if Peabody ever achieves it, they'll have had a lot of taxpayer assistance along the way.
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