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Mr. Chairman. I am pleased to appear before this Commission today to discuss the potential for replacing oil and natural gas with coal. In my remarks I will focus on the potential within both the manufacturing and electric utility sectors.

Background

Since the embargo and the quadrupling of world oil prices in 1973, U.S. energy policy has had one clear goal--to reduce oil imports. In evaluating either short- or long-run policies to attain this goal, serious consideration is always given to increasing the nation's reliance on its enormous coal resources. Indeed, policies designed to encourage the substitution of coal for oil and natural gas were the cornerstone of the Administration's first National Energy Plan submitted to the Congress in April, 1977. Over two-thirds of the planned oil import reductions were to be achieved through coal substitution in the manufacturing industries and in existing electric utilities. Substitution was to be encouraged primarily through excise taxes, tax credits, and tax rebates, and by strengthening the existing regulatory program. As you know, only the regulatory initiatives and a limited tax credit were finally enacted into law.

While coal substitution is critical to reducing oil imports, the nation has actually been able to accomplish very little over the last several years. A primary reason for this is that increasing coal use conflicts with other national goals such as protecting the health and safety of workers, and the physical environment. While oil prices have quadrupled since the early 1970s, the cost of using coal has also risen dramatically due to mine safety and health legislation, strip mining regulations, air pollution regulations and various other factors. While oil use faces uncertainty with respect to availability, coal use faces uncertainties with respect to labor relations and federal regulations.

A key task in identifying targets for coal substitution is to determine what form of coal is likely to be required by various energy users. The alternatives are coal in its natural, solid state or coal processed into a gas or liquid. For solid coal the prime targets are new boilers for manufacturers and electric utilities. Solid coal cannot be burned in existing boilers designed to burn only oil or gas and solid coal burning equipment is not generally available for most nonboiler industrial needs. For gaseous and liquid fuels from coal, the target is much broader and includes industrial and utility boilers, nonboiler industrial equipment, use as a chemical feedstock, and use for transportation, residential, and commercial energy needs. The conversion of coal into a gaseous or liquid form is still, however, not commercially available and when available it will be relatively expensive. Therefore, it represents an option for the future. The major short-term substitution possibilities are essentially solid coal use for boilers in both the manufacturing sector and electric utilities.

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