These objectives are being pursued under conditions of declining budgets, and it is imperative to improve the productivity of R&D both from government and the private sector. FE's response is to put increased emphasis on leveraging its R&D investment with GRI, EPRI, and with industry consortia, and to begin to look for ways to get more for less. This will mean a more science-based technology development, with emphasis on computer simulation and design and with emphasis on testing of components rather than whole-system demonstrations.

Obviously, all three objectives have important international consequences. Improved coal and gas power technologies can significantly reduce CO2 emissions globally. Oil and gas production technologies that diversify sources outside of the Middle East can help reduce the probability of a future oil price shock, and sustained domestic production reduces the cost of oil imports to the U.S. economy. Maintaining science and technology leadership improves our chances of being competitive and of providing better choices in the world markets.

The objectives seem properly drawn relative to the challenges to society, and many of the changes beginning to take place in DOE programs seem appropriate. In the Findings, Evaluations, Initiatives, and Recommendations section, these programs are evaluated against the objectives, and recommendations are discussed for new initiatives, phasing out programs, and budget changes. Clearly, R&D is necessary, but not sufficient, to advance new technologies to the point of commercialization, which is the ultimate extension of R&D. Commercialization issues are discussed in the Demonstration and Commercialization Issues section. In the Relevant Policy Issues section, some management issues are identified. In the Energy and Environmental Impact section, estimates of the potential impacts of advanced fossil technologies on CO2 emissions and on oil and gas production are discussed. Finally, in the Crosscuts section, projects and issues that crosscut DOE and the government are enumerated. Appendix D is a somewhat more detailed working version of this chapter.

FINDINGS, EVALUATIONS, INITIATIVES, AND RECOMMENDATIONS

In this section, programs are described and findings, evaluations, initiatives, and recommendations are discussed.

Description of DOE FE R&D Program Areas and Principal Findings and Evaluations

FE's R&D programs may be divided into three categories: coal and gas power, coal fuels, and oil and gas production and processing. In FY 1997, these programs were funded at $184 million, $16 million, and $70 million, respectively, for a total of $270 million. A more detailed listing of this budget is given in Table 4.1; the "Other" category in Table 4.1, amounting to a total of $95 million in FY 1997, includes predominantly the cost of program management. It also includes environmental restoration, regulatory reviews, plant and equipment, and small amounts for university research and the remnants of the Bureau of Mines. An additional $15 million was obligated in FY 1997 for the Clean Coal Program, a $2.4 billion 20year effort cost-shared with industry to demonstrate advanced coal technologies that reduce emissiohs.

The government fossil-related R&D is concentrated in DOE. Important R&D programs also operate in the Department of the Interior (DOI), namely, the U.S. Geological Survey (USGS), which is concerned with understanding fossil resources, and the Minerals Management Service (MMS), which is concerned with the safety of offshore exploration and production. The combined budgets of these agencies for fossil-related R&D are about $35 million per year or one-tenth of the DOE budget. In this discussion, the focus is on DOE programs, but the roles of USGS and MMS, particularly as they may relate to new initiatives, are included.

'FE (1997a).

COAL POWER

GAS POWER

COAL FUELS

OIL AND GAS PRODUCTION AND PROCESSING

INITIATIVES

OTHER

TOTAL R&D

The Coal Power Program is aimed at increasing efficiency and reducing emissions. In particular, the FE R&D objective for coal is to reduce environmental impacts to such a degree they are no longer a constraint to coal use. This is a necessary condition for coal to remain a strategic resource for the country in the longer term. Coal is certainly strategic (that is, it is necessary) to the economy today because it is used to generate about 56 percent of U.S. electricity (see Box 4.1). As is the case for oil and gas, a significant fraction, about one-third of the total and two-thirds of western coal, is mined from Federal lands. Furthermore, great progress has been made in reducing the environmental impact of coal production and use through a combination of policies, ranging from regulations to R&D (funded by the Federal government and by the private sector, principally through EPRI) and demonstrations including the Clean Coal Program.

The principal remaining environmental challenge is CO2 emissions, and it is formidable. Recently, FE has proclaimed a new initiative called Vision 21. The goal of Vision 21 is to develop a power system (which might also produce clean transportation fuels) that is highly efficient (about 65 percent), produces no appreciable air pollutants, and has no net carbon dioxide emissions. In addition, the goal is a system that produces power at less cost than the best pulverized coal plants today and, in fact, at costs competitive with natural gas. This is a most ambitious vision, but it has some chance of being realized (see Figure 4.1), and it is an appropriate target for DOE.

Figure 4.1: The Vision 21 Plant. Vision 21 is the DOE Office of Fossil Energy's idea for freeing
coal power from environmental constraints. For this scheme, coal and/or other feedstock fuels such as
biomass and some waste materials are gasified in an oxygen blown gasifier, and the product is
cleaned of sulfur and reacted with steam to form hydrogen and CO2. After heat extraction from the
CO2, it is sequestered from the atmosphere. The hydrogen can eventually be used as a transportation
fuel or it could be oxidized in a high-temperature fuel cell and the reactant hot gases could drive a gas
turbine and a steam generator to make electricity. This system could have an efficiency of 60 to 65
percent, which is the goal. Air pollutants are negligible and net CO2 emissions are zero or nearly so.
The overall cost goal is 10 percent less than that of a state-of-the-art pulverized coal plant.
Additionally, the vision is to use producer gas in a Fischer-Tropsch process to make clean
transportation liquids.

'FE (19976).

Box 4.1: Coal as a Strategic Resource

Today coal is used to generate the bulk of U.S. electricity (56 percent in 1995); hence coal is certainly a strategic (ie, necessary) resource. Reserves are enormous, equal to several hundred years of supply at the current rate of use. Similarly, large deposits are found around the world. For coal to remain strategic depends, however, on how two interrelated issues play out, cost, and carbon emissions.

For new electric generation capacity coal can not compete with natural gas environmentally or economically at this time in the United States. Gas power technologies are less expensive and they emit far less CO2 per unit of electricity produced than the best coal technologies. However, the cost of coal is likely to remain low and the cost of gas may rise as demand for it increases. So, at some time in the future advanced coal technologies may be less expensive to use if CO2 emissions can also be controlled economically, assuming control will be required. The same CO requirement would pertain to gas, of course, although emissions are less intense.

Results of a recent DOE sponsored conference suggest that there are no very serious technical barriers to CO2 sequestration although uncertainties about costs, environmental impacts, and the long term integrity of storage schemes remain to be resolved satisfactorily. See the Initiatives Section.) Technologies for CO2 capture and sequestration are being deployed today. In Norway, for example, Statoil, the Norwegian gas and oil company, is using state-of-the-art technology to sequester CO, from production of natural gas in saline aquifers under the North Sea. If these and more economical methods can be applied to coal systems, carbon emissions may be removed as an issue.

In the meantime the use of low cost coal is a practical necessity in many parts of the world including China and India where inexpensive natural gas is not likely to be found. The technology choices made by these countries will have global as well as regional and local environmental consequences and are, therefore, of importance to the United States. Consequently, the Panel endorsed two essential and interacting elements of a coal R&D strategy to be carried out in partnership with the private sector: (1) developing cost effective technologies that are attractive to coal-intensive developing countries and are much better environmentally with significantly reduced CO2 emission rates; and (2) inventing and developing advanced components and systems leading to DOE's Vision 21 with investigation of CO2 sequestration schemes and approaches to lower-cost clean transportation fuels including hydrogen manufacture and distribution for transportation and electric power. If successful, this R&D could lead to coal's retaining a strategic part of the U. S. energy future.

*Socolow (1997).

'Hileman (1997).

Vision 21 is not a reality yet and, in most circumstances today, coal cannot compete economically or environmentally with natural gas as the fuel for new power plants in the United States with current price scenarios. This situation is likely to persist for the next decade or two, primarily because gas is relatively inexpensive and is forecast to remain so; advances in the technology of the gas turbine (and other conversion technologies) will continue to favor gas; and deregulation of the generation portion of the electric system will likely make gas the preferred fuel for new sources and forepowering.

On the other hand, coal power will likely grow rapidly in some parts of the world, notably in China and India, where indigenous premium fuels are scarce and expensive. This trend will exacerbate the CO2 emissions of those countries, which will be major sources of atmospheric emissions worldwide. One way to moderate this impact is to develop attractive coal power technologies that have lower CO2 emissions (see Box 4.2). Because most activity will be in developing-nation markets, the FE program should focus on them.

Vision 21 must be compatible with this reality; it needs to be a technology for the global market, or it may fill no market at all. R&D should be tailored to produce versions that are attractive to specific developing-country situations. This global focus of R&D represents a major paradigm shift for DOE and for Congress. It requires a substantial overhaul of the DOE coal power program.

1

Box 4.2: The Cool Water Integrated CoalGasifier Combined-Cycle Plant
A Model For Government/Industry Collaboration

The goal of the Cool Water Coal Gasification Project, located at the Southern California Edison (SCE) Mojave Desert site, was to design, construct, test, and operate the world's first commercial-scale integrated coal gasification combined-cycle (IGCC) plant. The IGCC design included a new 120 megawatt electrical generating unit. The project's industrial sponsors viewed coal gasification as a way to use the world's vast coal resources in a way that would meet or surpass environmental performance requirements without add-on pollution controls. By taking advantage of rapidly improving gas turbine technology, a significant increase in conversion efficiencies could be achieved, thus reducing CO2 emissions as well. Cool Water provided a commercial-scale process to better understand operational dynamics, coal suitability, and environmental performance. Construction of the project began in December 1981 and was completed in April 1984.

In addition to financial support from SCE ($40million ), the project was funded at $45million by Texaco, and $30 million each by GE, Bechtel Power, and the Japan Cool Water Program Partnership. The Electric Power Research Institute (EPRI), representing the U.S. utility industry, contributed $75 million and additional funding of $5 million each was provided by the Empire State Electric Energy Research Corporation, and the Sohio Alternate Energy Development Company. The U.S. Synthetic Fuels Corporation agreed to provide price differential payments up to $120 million for syngas produced after commercial production began in June 1984. The facility was to operate under price guarantees for an initial 5 years and then to be acquired by SCE for a total operational life of 20 years. The plant ran until 1989 when the essential objectives of the program had been met and after a period of low and stabilized oil prices. A total of $105 million price differential payments was made out of the $120 million originally authorized.

Completed ahead of schedule and under budget, the Cool Water Project demonstrated that a commercial-scale synthetic fuels facility involving first-of-a-kind technology could be successfully planned, organized, designed, constructed, and operated. It also demonstrated that, notwithstanding technical success, start-up financial assistance for such projects might still be necessary for survival in today's energy market. Nevertheless, commercial interest in the technology continues to increase as combined-cycle efficiencies continue to approach 60 percent with significant reductions in capital costs and CO2 emissions. Fluidized bed combustion (FBC) has provided only modest environmental and cost advantages in recent years. Although capital costs still remain slightly above FBC options, the imposition of CO2 limits would increase IGCC's attractiveness substantially. The Cool Water experience has been broadly shared with other IGCC projects in Europe, Asia, and the United States.

Lessons Learned

1. Demonstration-scale projects should require industry to provide the capital costs for the facility. Participation should be as broad as possible across the designer, constructor, owner/operator or user communities to ensure a competitive supply capability and widespread experience. EPRI's funding, for example, provided a means by which all U.S. utilities could participate-from design input to data output.

2. Government support for technology deployment and commercialization should focus on market stimulation, environmental issues, and plant or product testing, rather than on plant costs. Government support in dollars and time should be capped.

3. A well-defined test program to demonstrate all expected benefits is essential.

The Coal Power Program consists of the following project areas: the low-emission boiler systems (LEBS); advanced pressurized fluidized bed combustion systems (PFBC); the high performance power systems (HIPPS); advanced integrated coal gasification combined-cycle systems (IGCC); and advanced research that is crosscutting and includes environmental technology. LEBS is needed to develop the next generation of pulverized coal plants with greater than 42 percent efficiency and very low NO, and SO,