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This week the House of Representatives votes on an energy bill. Lawmakers agree the United States has to create alternatives to imported oil. The only question is, well, how to do it? One idea has the backing of the Bush administration: to make liquid fuel from coal.

NPR's Kathleen Schalch reports.

KATHLEEN SCHALCH: Harold Wright is chief technology officer at a company called Rentech. It's a small firm with big plans.

Dr. HAROLD WRIGHT (Chief Technology Officer, Rentech): We're 230 people working to end the dependence of the United States on foreign oil.

SCHALCH: Rentech aims to build the first commercial coal-to-liquid plant in the nation. It's completing a pilot plant and research facility in Denver, installing machines that will crush the coal, heat it until it literally vaporizes, then clean the gas, leaving a mixture of hydrogen and carbon monoxide.

Dr. WRIGHT: The nearly pure hydrogen and CO go to what's called the Fischer-Tropsch reactor. And this is a model of it so you can sort of see how it works. The CO and hydrogen come in the bottom and bubble essentially through a liquid medium.

SCHALCH: Turning the gas into a liquid that can be refined like crude oil into fuel. In the past, countries have only resorted to turning coal into liquid fuel only when they were desperate. Germany made liquid coal during World War II and South Africa did it when the country faced an apartheid-era trade embargo.

But Harold Wright of Rentech says today's high oil prices mean this technology's time has come. The US has ample coal reserves.

Dr. WRIGHT: Really, the United States is the Saudi Arabia of coal.

SCHALCH: But now, Wright says, it's spending a billion dollars a day to import oil.

Dr. WRIGHT: We might as well use that billion dollars a day inside the United States, developing an industry and infrastructure and jobs for Americans.

SCHALCH: But making liquid coal is expensive. Each plant is likely to cost four times as much as an oil refinery. And if oil prices fall, the market for liquid coal could dry up. Wright says Rentech would like a government guarantee that it will at least break even.

Dr, WRIGHT: One thing that the federal government could do is put a price floor; $45 a barrel would do it.

SCHALCH: The industry is also hoping the government will sign a long-term contract to buy liquid coal jet fuel for the Air Force. Many lawmakers from coal states are enthusiastic about this; taxpayer and environmental groups are not. Autumn Hanna of Taxpayers for Common Sense says the country has been down this road before.

Ms. AUTUMN HANNA (Taxpayers for Common Sense): In the 1970s, we had high oil prices and the government responded by doing a push for the synthetic fuels industry, and they put $15 billion out there into this industry. And what happened is oil prices dropped and taxpayers lost billions of dollars.

SCHALCH: Environmentalists complain that making and burning fuel from coal generates twice as much of the greenhouse gas carbon dioxide as gasoline. Elizabeth Martin-Perera is a climate policy specialist with the Natural Resources Defense Council.

Ms. ELIZABETH MARTIN-PERERA (Natural Resources Defense Council): Basically what it would mean in terms of impact on the climate is that if you're putting liquid coal into a compact car, a more efficient car like a hybrid, it would be the equivalent of turning that vehicle in to a large SUV or a Hummer.

SCHALCH: Water is another worry. Montana conservationist John Smiley says a coal-to-liquid plant could require up to 15 gallons of water for every gallon of fuel it makes.

Mr. JOHN SMILEY: At that ratio, a plant of just 22,000 barrels a day - a very small plant - would use half as much water as the city of Billings, which is a city of 100,000 people.

SCHALCH: Arguments like these have stymied congressional efforts to jump-start the coal-to-liquid industry. The Senate recently voted down subsidies potentially worth billions of dollars. But companies like Rentech say they hope to win over environmentalists by building plants that can capture greenhouse gases and store them underground, and lawmakers who back liquid coal say they're not giving up.

Kathleen Schalch, NPR News.

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