The good news is that China's leaders saw the coal rush coming in the 1990s and began exploring a range of advanced technologies. Chief among them is coal gasification.
Gasification transforms coal's complex mix of hydrocarbons into a hydrogen-rich gas known as synthesis gas, or "syngas." Power plants can burn syngas as cleanly as they can natural gas. In addition, with the right catalysts and under the right conditions, the basic chemical building blocks in syngas combine to form the hydrocarbon ingredients of gasoline and diesel fuel. As a result, coal gasification has the potential both to squelch power plants' emission of soot and smog and to decrease China's growing dependence on imported oil. It could even help control emissions of carbon dioxide, which is more easily captured from syngas plants than from conventional coal-fired plants.
Despite China's early anticipation of the need for coal gasification, however, its implementation of the technology in power plants has lagged. The country's electricity producers lack the economic and political incentives to break from their traditional practices.
China's largest coal firm, Shenhua Group, plans to start up the country's first coal-to-fuels plant in 2007 or early 2008, in the world's most ambitious application of coal liquefaction since World War II. Shenhua plans to operate eight liquefaction plants by 2020, producing, in total, more than 30 million tons of synthetic oil annually--enough to displace more than 10 percent of China's projected oil imports. China is using a direct liquefaction produces more fuel per ton of coal than Fischer-Tropsch synthesis. Experts at the Chinese Coal Research Institute in Beijing estimate that the process captures 55 to 56 percent of the energy in coal, compared to just 45 percent for Fischer-Tropsch.
If the new plant works, Shenhua stands to earn a substantial profit. The company predicts that its synthetic oil will turn a profit at roughly $30 a barrel, though many analysts say $45 is more realistic. (The U.S. Department of Energy's most recent price forecast predicts that crude oil will dip to $47 a barrel in 2014, then climb steadily to $57 a barrel in 2030.) Hedging its bets, Shenhua has also entered a preliminary agreement with partners Shell and Sasol concerning several similar-sized or bigger Fischer-Tropsch fuel plants in Northern China, which would start up in 2012.
Beyond the risks inherent in the large-scale deployment of unproven technology, the gasification building boom also is an environmental gamble. Indeed, what may ultimately check China's coal-to-oil ambitions is water. China's Coal Research Institute estimates that Shenhua's plant will consume 10 tons of water for every ton of synthetic oil produced (360 gallons of water per barrel of oil), and the ratio is even worse for Fischer-Tropsch plants.
It seems like even advanced coal is still a bad environmental bet. Mass produced nuclear power plants that power plug in hybrids would be a better way to go in the near and midterm.