KEYNOTE ADDRESS:

“BUILDING A BRIGHTER FUTURE FOR COAL BY BUILDING A BETTER POLITICS OF COAL”

Roger S. Ballentine

President

Green Strategies, Inc.

COAL-GEN 2003

Columbus, Ohio

August 6, 2003

Thank you Steve. It is a pleasure to be here with you today. And it is particular pleasure to be here with Dr. Linn Draper, whose leadership has been a model not just for the power sector but for all of corporate America.

Introduction

When I told a Republican friend of mine that I would be giving a speech to a conference of the coal industry, she remarked that perhaps a former Clinton White House guy would get a better reception at the annual meeting of the Sierra Club.

After responding that my suspicion was that the coal folks would be a heck of a lot more fun to hang out with, I got to thinking about what exactly I would say if I were speaking to the Sierra Club.

So if you will indulge me for a moment, I would like to pretend that I am in San Francisco and not Columbus and that the audience is liberally sprinkled with birkenstocks and Ralph Nader for president t-shirts.

Environmentalists and the environmental movement have made many important contributions to society and can rightly claim a significant amount of credit for the fact that our water is safer and our air is cleaner than it has been for decades. You are also right in your charge that there is much more to do and I admire your good faith belief in what you are doing.

But I also believe that you are making a number of serious mistakes in how you approach key public policy issues. Let me elaborate.

• First, it is always a mistake to confuse the righteousness of your goals with the righteousness of your tactics – this leads you to seeking and accepting only what you consider “the perfect” while dismissing any compromises that might be considered merely “the good”;
• Second, it is almost always a mistake to demonize those who differ with you and to fail to understand their point of view.
• Finally, you sometimes fail to acknowledge all facts relevant to your issues, both the facts that support your position and those that are less convenient.

Take the example of clean air and coal-fired power. You want cleaner air and you want to reduce greenhouse gas emissions. These are important goals.

But before you simply call for sweeping changes in the way we produce energy you must acknowledge a few facts:

• Coal is a cheap and abundant domestic resource; no terrorist can disrupt it and we don’t need to fund unsavory regimes in foreign nations to get it.
• Coal has been the backbone of electricity production in this country for the better part of a century and it will be a major part of our energy mix for the foreseeable future. Any plan for the energy future of this country that does not include a major role for coal is simply unrealistic.
• The coal sector is also a major part of the economy and fabric of large parts of America. Many hardworking American families depend on the coal industry for their livelihood. Any plan to address other pressing issues like clean air and climate change must also respect and consider the importance of coal to the lives of many, many people.

Therefore, if you really want to make progress, you need to find a way to work with coal and not just against it. Instead of only treating coal as the problem, you need to figure out how to make coal part of the solution.

And at this point, the audience would probably be throwing organic tomatoes at me.

But of course I am not in San Francisco. I am at Coal-Gen. So let me make a few different points.

Concerns about air quality and climate change are becoming more acute and shared by an increasingly broader segment of the country and the world.

Governments at the local, state, federal and international level are taking broader and stronger action to address these issues. And this trend is unlikely to slow and will almost certainly not reverse itself.

In my opinion, the strongest and most secure future for coal will be built not by committing more and more resources to political and public relations battles meant to counter these trends, but by adopting an approach that respects the demands for environmental progress and works to make coal part of the solution to environmental problems – thus turning these clear trends in science and public opinion from challenges to the future of coal to economic drivers for an expanded and more secure marketplace for coal.

I. The state of politics in Washington today

For those of you fortunate enough not to live and breathe politics in Washington D.C., let me talk a minute about the current state of affairs.

Politics and policymaking in Washington have become perhaps as partisan and ideological as they have ever been. Political campaigns are increasingly characterized by arguments that pit only the far left against the far right. One would be hard pressed to find a congressional race in the country that, according to the rhetoric of the campaigns, does not pit a “right wing conservative” against a “tax and spend liberal”.

And as never before, the politics of political campaigns has become the politics of policymaking. Virtually all contentious issues are debated in the rhetoric of the extremes; perhaps the most endangered species in Washington is the moderate politician.

The result of this severe partisanship and intense ideologicalism is that enduring, consensus-based resolution of contentious policy debates is increasingly elusive.

II. The environment and the politics of coal

For debates over environmental policy in general and coal in particular, these dynamics are especially acute– and they have direct and significant economic consequences.

Consider the some of the near term economic impacts of the political gridlock surrounding clean air and climate change:

• The coal industry and the power sector are forced to make significant expenditures for public relations campaigns;
• The industry is forced to spend millions of dollars on defensive lobbying efforts in Washington and at the state level;
• And of course, millions are spent on lawyers and litigation.

And there is more evidence of the direct economic impact on the coal industry of this contentious state of affairs:

• To me, one of the clearest indications that the uncertainty and costs of the political gridlock afflicting coal has real economic consequences is the revived interest in liquefied natural gas. Why in the world does it make economic sense to liquefy African or middle eastern gas, ship it to the u.s., and build expensive and vulnerable LNG terminals and pipelines when we have so much coal right here at home?
• In large part it is because of the political uncertainty and environmental concerns regarding coal.
• Yes, gas prices are high and supply is tight, but to a significant extent that too is a function of the challenges facing coal.
• And of course there are longer term economic effects of this uncertainty and gridlock: hesitancy toward long term investments in coal; increased cost of capital; and fear of future stranded investments.

III. The current clean air act and climate change debates

The current debates in Washington over changes to the Clean Air Act are a good example of the problem.

The first major revisions to the clean air act in more than a decade are currently being debated and that debate will continue at least into next year. There is a wide range of views on the topic. On the far left, there are those who would like to pursue an approach that focuses immediately and intensely on the use of renewable energy and the strict control of carbon emissions. This camp wants immediate changes and looks none-to-kindly on coal.

On the hard right, there are those who seek no changes at all other than the easing of existing regulatory requirements.

As I would have said to the Sierra Club, the hard left position is unrealistic and inappropriate for political, economic and social reasons.

Similarly, the hard right position is equally untenable, as it is also unrealistic, counter to real social and political trends.

And there are proposals in the debate lying between the far left and the far right. The Administration has stressed that its “Clear Skies” initiative is founded on the premise that there are real environmental problems that justify tougher approaches.

Beyond “Clear Skies”, nearly all Republican and Democratic senators and governors from the northeast have signed on in support of a more sweeping bill that goes beyond Clear Skies and that includes regulation of carbon emissions. In fact, this bill recently garnered the support of Senator Lamar Alexander from Tennessee – hardly a northeastern liberal.

I interpret all of this to mean that there is little prospect for any major policy change in the near term (by which I mean this year) but virtual certainty of significant change in the longer term.

But for now, we are left with uncertainty, tremendous expenditures for political fights in Washington and expensive battles for public opinion.

IV. Building a new politics.

I don’t want to overstate the significance of Lamar Alexander supporting a four-pollutant Clean Air Act bill, but it is a useful example of how a new politics of coal might differ from where we are today.

I have no doubt that the immediate reaction of some in the coal and power industry to Senator Alexander’s announcement was the typical Washington lobbyist response – pressure him, lobby him to change, mobilize constituents to express their displeasure, consider running an ad campaign to criticize his position, and ultimately battle him to the point that he either changes his position or you succeed in making life so difficult for him that it becomes an example to any other senator who might consider following him.

But what if instead, we asked ourselves why a solid southern republican with a strong record of supporting coal felt that not only was the status quo unacceptable but that even the administration’s relatively proactive approach was insufficient?

What if we sought to understand and anticipate these motivations in a way that allowed us to reconstruct a politics of coal and clean air built from the middle of the political spectrum in a way that, again, presented coal as part of the solution to the problems that Senator Alexander and others believe are real and not part of the problem. And when the political center leads the way, we can build policy approaches that one can be more certain will stand the test of time.

I believe that the goal of the coal industry and power sector should be a political approach --

• That is built on the fact that coal should and must play a central role in our energy future;
• That will provide certainty to investors;
• That will minimize the need for defensive and non-economic expenditures on K Street and Madison Avenue;
• That minimizes the need for ongoing regulatory intrusion and compliance costs;
• That opens new markets for coal and coal technology in the U.S. and around the world;
• That creates and exploits value-added markets for coal products;
• And that promises real environmental improvements.

V. Technology is the answer

How could we do this?

I believe that the key to a more secure future for coal and for a broad political consensus built from the political middle can be found with coal gasification.

Coal gasification is the only clean coal technology that is mercury-capture-ready; produces sulfur as a marketable solid waste by-product; and is carbon-capture capable. It is a proven technology; it yields high net efficiencies, and is a bridge to a hydrogen future.

Yes, IGCC is expensive. But we must assess that cost in light of the costs that could be avoided. With a new approach and a focus on IGCC we could cut the non-economic expenditures currently made for litigation, defensive lobbying, and public relations.

Then we can subtract out the multi-billion dollar investments in otherwise non-economic end of pipe pollution controls – investments that are only made for regulatory compliance reasons and which add to operating costs. And here we must soon add new control costs for mercury.

Still too expensive? Consider the reduction in the long term cost of capital when economic and political uncertainty is dramatically reduced.

Still too expensive? Consider the future markets for by-products like hydrogen, fertilizers, other feedstocks, and payments for carbon sequestration.

Still too expensive? Then the public should help pay.

Why do I say this?

Environmentalists and economists often make the argument that the case for imposing penalties and costs on coal-fired generation lies in the externalized environmental costs produced by the industry. But the flip-side of that argument is that the public should help pay for investments in technologies that provide benefits beyond those that can be fully realized by the investor.

In the case of more expensive coal gasification, the benefits include not just the security of the industry over the long term, but the well being of those who depend on coal, our rural economies, and of course cleaner air and cleaner water.

And with a new, powerful and supportive political coalition in support of coal, such public investment and other policy incentives are achievable.

VI. A new coalition

There is in fact a new coalition being formed in Washington that will push for a greater role for coal gasification in the nation’s energy mix and seek the public and political support this technology deserves. The coalition will not argue for greater environmental controls and it will not lobby against any other type of coal or other power technology. And while the coalition will have only a positive agenda in support of coal gasification, such an effort can in turn help build broader and more enduring political support for coal that will help ensure a stronger and more enduring future for coal.

Politics in Washington are clearly broken, but not beyond repair. And perhaps coal can be part of the solution to that problem as well.

Thank you.