After decades of energy abundance, booming worldwide demand for electric power and transportation fuels has once again dramatized the importance of energy supply to growing economies.

For the United States, the 2005 hurricane season and the resulting disruption of petroleum production and refining capacity in the gulf, coupled with the nation's increasing dependence on imported energy and the intensified competition for this energy from rapidly expanding economies such as China and India, has added urgency to the task of finding domestic solutions to our thirst for costly imported energy.

Already, imported energy — including crude oil and natural gas — is taking its toll on the American economy. It accounts for a third of the record U.S. trade deficit, accounts for a significant share of America's rising defense expenditures, and largely accounted for the 17 percent increase in America's 2005 energy bill from the year before.

The U.S. can use its unrivalled coal reserves — the world's largest — to cut its energy import bill and take greater control of its economic destiny. Coal can provide significant new supplies of affordable coal-to-liquid (CTL) fuels for transportation, for basic industries, to enhance oil and coal bed methane recovery and to produce ethanol.

Producing CTL fuel does not depend on unproven, futuristic technology nor require extensive R&D. As early as 1944, Germany's CTL plants were producing 90 percent of that nation's fuel needs. In the 1950s, South Africa developed a coal-to-liquids industry that today provides 30 percent of that nation's transportation fuel. China is already building a $2 billion CTL plant that will begin using its coal reserves in the fall of 2007, and plans to build many more. CTL projects are also moving forward in India, the Philippines, Indonesia and Australia.

CTL production yields fuels that are economically viable, geographically dispersed, environmentally sound and suitable for use in today's vehicles and aircraft. Commercial and military aviation use are promising early markets.

With CTL deployment, local economies could benefit significantly, too. A CTL plant, with an output of 10,000 barrels per day, can support 200 direct jobs on site, at least 150 jobs at the supporting coal mine and 2,800 indirect jobs throughout the region. During construction, another 1,500 temporary jobs will be created, according to the Illinois Department of Commerce and Economic Opportunity. States with significant recoverable reserves of coal such as Montana, Wyoming, North Dakota, Illinois, West Virginia and Pennsylvania are already planning to capitalize on the economic benefits from CTL technology.

A feasible, near-term goal would be the production of at least 300,000 barrels of liquid transportation fuels per day by 2015 using CTL technology — a supply equaling the amount of fuel consumed daily by the U.S. military for domestic operations. The first step toward this goal is construction of up to 10 CTL plants, altogether producing at least 100,000 barrels per day.

CTL plants are costly to construct, about $1 billion dollars for a 10,000 barrel/day facility, and $6.5 billion or more for a world-scale 80,000 barrel/day plant with a five-seven year lead time.

To jump start CTL production on a significant scale, federal participation is critically important for two reasons. First, financial assistance on a limited scale will help to reassure private investors wary of undertaking major investments in energy technologies untried in the United States. Second, federal participation will discourage the foreign oil cartel from manipulating oil prices temporarily for the sole purpose of destroying a competing domestic fuel source. The following incentives will assist early CTL project participants to more easily absorb these higher costs:

• Federal government purchasing support through long-term, guaranteed fixed price contracts from the Department of Defense and other agencies. This will discourage oil exporting countries from manipulating imported oil prices solely to block U.S. development of CTL fuels.
• Authorization and appropriation of $500 million in deployment funding support in the form of grants or non-recourse loans to cover front-end engineering and design costs for the initial 10 plants.
• An appropriation to underwrite federal loan guarantees (authorized by Title XVII of the Energy Policy Act of 2005) for up to 10 CTL plants through 2015.
• A 20 percent investment tax credit capped at $200 million total per CTL plant to be made available to plants placed in service before December 31, 2015.
• Extension of the expiration date of the 50 cents per gallon fuel excise tax credit from September 2009 to December 31, 2020.
• 100% expensing of investment in the year of outlay for any CTL plant online by December 31, 2015.

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