Baard Energy has announced that it is seeking $2.3bln in government guaranteed low interest rate loans from the Department of Energy to help construct a new $6bln coal to liquids fuel plant in Wellsville, Ohio. This proposal should be viewed as a high risk use of public funds and a complete rip-off to the American taxpayer given the facilities high break even costs, large carbon footprint, and its weak ability to leverage additional investment.

According to Baard's own website, the Baard coal to liquids facility is expected to produce 53,000 barrels a day of coal to liquids fuel without the benefit of biomass (for at least the first 10 years) or carbon sequestration. This facility is expected to have a carbon footprint of 27mln tons of CO2 and produce a straight coal to liquids fuel which, according to a recent NETL study, has a greenhouse gas emissions rate that is 47% higher than petroleum derived diesel fuel (the EPA has this number signficantly higher). The high GHG emissions of this straight coal to liquids fuel would be in direct violation of the Section 526 of the Energy Independence and Security Act of 2007 which prohibits federal agencies from procuring a fuel unless its life-cycle GHG emissions are equal to or less than those for conventional petroleum sources (the "petroleum baseline"). In addition, President Obama is unlikely to make it any easier for Baard to sell their CTL to the US government. He has recently said that he would not support a CTL plant unless its life-cycle GHG emissions are 20% lower than conventional fuels.

What Baard seems to be betting on is that the government remembers its early promises to use a 30% biomass co-feed and sequester 90% of the carbon from the facility. This was in their original proposal and according to NETL would have produced a fuel that is 63% lower in GHG emissions than standard diesel. While this facility would have complied with government purchasing requirements, Baard is balking at the $109/barrel break even cost (excluding carbon costs) to build such a facility, deciding that it would rather build a straight coal to liquids plant that has a $84/barrel breakeven rate (excluding carbon costs) and take its chances.  Like magic Baard's bait and switch has turned a coal to liquids fuel that was meant to reduce GHG emissions by 63% into one that increases GHG emissions by 47% or more. Now the good people at Baard are expecting the US taxpayer to applaud and throw money, a lot of money.

Indeed, given how bad the economics of building a straight coal to liquids plant are with oil prices hovering around $40/barrel and climate legislation seeming imminent, Baard must be assuming that they can not only find a way to exempt themselves from the current environmental laws on the books, but also figure out some way to pass on the additional costs to their customers. The main customer being the US Air Force, which means you and me. 

As can be seen in the table below, the break even cost of straight coal to liquids is currently $84/barrel of oil without carbon costs. This break even cost rises to $100/barrel equivalents at $45/ton of CO2 and then reaches a break even cost of $115/barrel at a CO2 price of $90/ton. In other words, a taxpayer investment in the facility looks bad today and only gets worse over time. This is in contrast to the cost profile of even a 15% biomass co-feed facility that includes carbon sequestration. Fuel from this facility would emit 33% less GHG emissions than standard diesel and would start out at a break even of $95/ton without a carbon price. It would then ratchet down to $86/barrel at $45/ton of CO2 and then $76/barrel as the carbon price reaches $90/ton.

In sum, the American taxpayer should adamantly oppose Baard's request for a $2.3bln loan guarantee from the Department of Energy as the facility undermines current environmental law, makes no economic sense, and fails to provide the leverage needed to stimulate additional private sector investments.