Reorienting energy to accentuate the positive: a comprehensive plan for U.S. economic growth.

Thank you ladies and gentlemen of America's longwall mining community, the world's most productive underground coal miners. My assignment is to talk about the Bush administration's energy strategy and, by extension, this week's announcement of initiatives on climate and the Kyoto Protocol as

But it's also worth mention here at the outset that the Nexis computerized database reports that 23 years ago yesterday -- June 12,1978 -- a national business magazine began a story on the energy crisis of that year with an opening paragraph as follows:

"Desperate for a cure to their growing productivity problems, U.S. coal operators at long last are turning to longwall mining."

In the brief time since then:

* Longwall production rose from 2 percent of all coal production to almost 20 percent;

* The longwall share of Underground production went from 5 percent to almost 50 percent;

* Underground production rose from an historic low to an historic high -- up by 70 percent;

* And underground productivity rose at least 270 percent.

Over the same period of time there were related developments in electric power:

* National demand grew by 1.5 trillion kilowatt-hours;

* Generation with coal grew by 988 billion kilowatt-hours -- that is, the increase in coal use accounted for 66 percent of all new demand;

* And the national share of power generated with coal rose from 44 percent in 1978 to 52 percent last year.

Last January the national price of coal for power generation averaged $1.12 per million British thermal units while natural gas averaged $9.20. Last January and February coal delivered almost 55 percent of the nation's power.

These achievements are not unrelated to the Bush administration's initiatives.

There's been a change in perspective in Washington, one that encourages the positive rather than accentuates the negative.

For much of the last decade, many in charge of federal policy looked on the idea of using more coal for electric power the way some look on the religious concept of heaven: They all professed to believe ... but few intended to try it any time soon. During this time coal the resource was the object of a series of regulatory actions designed to reduce it from first among equals as an electro-power fuel to last among equals.

The attempt failed. It failed in no small part because coal the industry was technologically adept, aggressive and productive -- because it deploys and improves advanced technologies such as longwall mining that keep it competitive.

The price of coal was lower because coal was readily available. Coal was readily and widely available because underground mining was in the market. Underground coal was in the competition because longwall mining is in the mix. The competitiveness of coal the industry and the enormous reserve base of coal the resource was recognized in the energy strategy just put forward by the Bush administration, whose formal report found:

"If rising U.S. electricity demand is to be met, then coal must play a significant role."

Last month the Bush administration started a much-needed public debate on national energy strategy. This week the President initiated a round of activity that will lead to proposals for new approaches to the Kyoto Protocol to the international agreement on climate change; to the climate controversy itself; and to carbon dioxide.

The principal co-sponsor of the resolution that caused the last administration to withhold the Kyoto Protocol from the U.S. Senate for fear of rejection has been quoted as seeing in the sequence of recent events a guiding theme.

Senator Charles Hagel, of Nebraska, says the tandem initiatives mean the Bush administration wants to give the nation its first-ever strategy to unify environmental, energy, and economic policy.

The purpose is to identify, consolidate, balance and deal with the sum of concerns rather than pile one regulatory demand atop another, the demands often in conflict.

There's been a reorientation of federal policy and policymaking.

Not long ago policy discussions on energy and electric power centered on things that everybody said but that nobody who dealt in fact really believed. Now they are coming to center on facts that everybody believes but that almost nobody in authority during the last decade was willing to admit.

Much of this has been ignored amid the soundbite and the fury of the evening newscasts and the morning headlines.

It's against this background that I ask you to join me in thinking about:

* Initiatives underway that deal with weaknesses and vulnerabilities in energy, especially electric power;

* Concerns and coming initiatives that will deal with the climate controversy and the Kyoto Protocol;

* And, finally, the activities of the National Mining Association to pass what we call the NEET bill on coal-based generation -- the National Electricity and Environmental Technology Act, 5.60.

It helps understanding to begin with the energy situation in California.

California, in the exercise of all good intentions, chose a road for electric power that led straight to ... someplace other than success.

For awhile the idea of the negawatt dominated a lot of strategic thinking in California -- the idea that power not used is the moral equivalent of baseload awaiting dispatch.

In the heyday of the negawatt, a utility planner made this boast to the national press: Almost all future requirement for new capacity can be met by rigorous demand-side management alone; and no big new plants will be needed.

Theory once argued that the least-expensive power is the megawatt not used.

Now the rolling blackout has become a tool of demand-side management in California.

Now experience is proving that the most expensive megawatt is the one that's not there when it is needed. It closes businesses and basic industry. It taxes the poor. It disrupts life. And it bleeds away vitality.

Even before its flawed deregulation, California's actual policies paralleled the restrictions and restructuring that activists and some officials have demanded in the nation's power supply for compliance with the Kyoto Protocol.

Over the years the accretions of political movements, social pressures, regulation, and policy gave Californians a system:

* That lacked sufficient intra-state generation capacity to meet demand;

* That lacked diversity in the generation it had -- too little alternative to natural gas for too much power;

* That lacked sufficient transmission capacity for both power and the preferred fuel for power, natural gas;

* That relied more on the promise of theories and novel forms of generation than on assured performance;

* And whose environmental regulations took capacity out of service without regard to the public's requirement for power.

In the federal climate of the 1990s, concepts of the kind embraced in California began to find expression in the regulatory proposals and acts of key federal agencies.

There was an experiment in the use of regulation:

* To rewrite the law without the tedium of dealing with Congress;

* To influence the choice of fuel in power generation;

* And to restrict the use of coal with the threat of ever-escalating involvement.

Uncertainties multiplied. None would risk investment in baseload power.

Nobody built base load power. Now once unused capacity is being claimed by rising demand, and the reserve is shrinking. Now the North American Electric Reliability council has warned the nation's reserve margin for this summer is dangerously low -- 11 percent.

Now in Washington the realization is taking hold that California may represent a communicable disease:

* That other parts of the nation may experience rolling blackouts absent modification of policy;

* That reliability may soon be at risk -- limited capacity to generate and to transmit;

* That the national power supply may soon be inadequate -- too much demand and not enough capacity;

* That natural gas is experiencing an artificial, policy-induced volatility;

* That the volatility may limit its usefulness as a power fuel;

* And that the sum of concerns adds up to a clear danger that merits early and diligent attention.

The Bush administration's report National Energy Policy summed up energy this way:

"A fundamental imbalance between supply and demand ... (a) crisis(that) will inevitably undermine our economy, our standard of living and our national security."

Let's first touch on the pertinent recommendations in electric power and coal. Then we'll examine some facts, findings and assertions behind them. The report delivered more than 70 recommendations for reorientation of federal energy regulation and more than 20 for legislative action.

Much that will affect coal is undertaken administratively. Some of it is underway now. Two Presidential executive orders were recommended and have been entered:

* One requires energy impact statements on all new regulation that could adversely affect energy supply -- statements that pose alternatives;

* The other establishes an inter-agency task force to expedite and coordinate permitting of projects relating to energy supply at all levels projects including new power plants.

* Next, a reorientation of regulatory practice was directed across the range of federal agencies:

* To cause regulators to recognize and take into account the cumulative impacts of their proposals;

* To resolve the elements of uncertainty and caprice that now attach to existing coal-based plants and the New Source Review;

* To instill certainty and predictability in the body of federal regulation on coal-based power;

* To infuse into regulation clear policies that can be applied easily to business and investment decisions;

* And to develop new regulations that encourage the advancement and use of advanced technology.

The report set short-, mid- and long-term objectives for the Clean Coal Technology program:

* First, to enable early increases in power output from existing power plants by raising efficiencies and environmental performance;

* Next, in the mid-term, thermal efficiency in generation of 50 percent and emissions that can be measured only in minor fractions of current federal limits;

* Finally, in the long term, efficiency of 60 percent and power production with zero net emissions.

The National Coal Council last month found that clean-coal up-grades to the existing fleet of plants could increase nationwide capacity by the equivalent of 40,000 new megawatts. Setting the stage for this gain is a regulatory matter.

Recommendations specific to the Clean Coal Technology Program include:

* Permanent extension of the existing tax credit for research and development;

* Funds to be matched by industry at the rate of $200 million a year for 10 years -- a total of $2 billion;

* And regulatory encouragement for the commercial deployment of advanced technology.

The report did not call for either production tax credits or investment tax credits in connection with technology from the Clean Coal Program, but it did recommend such incentives:

* In renewable applications that pair coal with biomass;

* And in combined heat and power projects.

In other legislation, the Presidential strategy calls for:

* A policy that instills certainty and permanence in the regulation of power production for sulfur, nitrogen and mercury -- but not carbon dioxide;

* Restructuring of the electric power industry to establish a true national market and true competition within that market;

* And, in transmission, the high-voltage equivalent of the interstate highway system -- a real national grid that lets low-cost producers everywhere respond to demand anywhere.

No specific legislative proposals were made. The pertinent agencies are to come forward with subsequent recommendations and to work with the Congress in passing them into law.

In electric power, the report found a requirement for:

* More than one new power plant a week through 2020;

* Or from 60-to-90 plants a year;

* Until a total of 393,000 new megawatts is on line.

It might be appropriate now to touch on findings from the strategy report to the point of electric power. They include the following:

* "If rising U.S. electricity demand is to be met, then coal must play a significant role";

* "Coal ... generation costs are low";

* "Coal prices have proved remarkably stable ...";

* "... rising natural gas prices have renewed interest in building coal-fired power plants....";

* "If policies ... sharply lower coal electricity generation.... This creates concern about the adequacy of natural gas supplies....";

* "It is doubtful that natural gas electricity generation could ... expand to compensate for the loss of (other) generation....";

* "The projected rise in domestic natural gas production ... may not be high enough to meet projected demand ...";

* "... the long-term availability of adequate, reasonably priced natural gas ... is a challenge."

Earlier this year the President rejected the Kyoto Protocol as proposed. He also rejected a companion contention that carbon dioxide is a dangerous pollutant. He said he was simply recognizing the realities of energy.

I propose that for the moment we move ahead on the same track -- that is, that we turn briefly to the realities of energy in the United States; and then take up discussion of what comes after Kyoto.

The anti-carbon movement wants sharp reductions in U.S. coal use, and the reality is that America's recoverable coal reserve of 274-billion tons is 95 percent of all domestic fossil energy.

In energy content this coal is:

* 39 times the domestic reserve of natural gas;

* 54 times the domestic reserve of oil;

* 1.3 times the oil held by the countries of the OPEC cartel (Organization of Petroleum Exporting Countries);

* Four times the oil of Saudi Arabia;

* And, the largest increment of energy in the world within the borders of one nation.

One British thermal unit of every six Btu's of fossil fuel available to the world is in American coal.

An American energy policy that ignores coal would be an OPEC energy policy that ignores oil. A climate policy that turns its back on coal is a threat to the nation's stability economic stability, social stability, and environmental stability.

Even before the realities of energy led the President to reject the Kyoto Protocol, it was fated for rejection in the Senate.

All questions of the human influence on climate aside for the moment -- but set aside only for the sake of argument -- the common grounds for the Protocol's demise include solid findings of science such as these:

* Not even full compliance by all industrialized nations will usefully reduce or slow the accumulation of carbon dioxide in the atmosphere;

* Full compliance might shave 4/10ths of one percent off C[O.sub.2] projections;

* Full compliance would not change the projected rise in temperature by 1/10th of one degree Fahrenheit (through 2050);

* The developing nations are exempt from the Protocol;

* Carbon dioxide from the developing nations would nullify and swamp full compliance by all industrialized nations alone;

* Only one of five major European economies is likely to come close to compliance;

* The Protocol's limits on energy would impose deep and enduring dislocations on the U.S. economy;

* The dislocations would impose personal hardship on American workers and their families;

* The science and understanding of climate will advance and fill in rapidly in coming years;

* Rigorous enforcement of the Protocol would stabilize carbon dioxide about the year 2150 at great harm to the world economy;

* But the diligent advancement of technology without enforced restrictions on energy also would stabilize carbon dioxide about 2150 and benefit the world economy.

Consequently, a consensus was forming around an approach that centers on technology and intensified study -- an approach that leaves behind the coercive powers and central allocating authority explicit in the Kyoto Protocol.

It looks like the President plans to take up and amplify this approach in paired initiatives:

* In a climate change technology initiative to identify and develop more effective and less harmful ways to curb carbon dioxide -- to do it without forcibly restricting the availability of low-cost energy;

* And in a climate change research initiative to fully understand what is happening in climate so that remedies more effective than Kyoto may be designed -- more effective and less defective.

In this context, the International Energy Agency estimates that every one percent increase in thermal efficiency of coal generation leads to a 3-to-4-percent reduction in C[O.sub.2] released per kilowatt-hour. The current U.S. average of efficiency is about 33 percent.

Generating applications in the Clean Coal Technology Program offer C[O.sub.2] reductions of as much as 20 percent per kilowatt-hour below the average. These are ready for deployment now -- these and state-of-the-art generation with pulverized coal at 38 percent efficiency.

The coal industry is a full and wholehearted participant in the Department of Energy's Vision 21 program that includes these goals:

* Thermal efficiency of more than 60 percent in generation;

* Overall energy efficiency of 85 percent in combined applications;

* And power production from coal at zero net emissions, which means advances in low-cost separation and sequestration.

While the President's energy strategy offers no incentives to deploy Clean Coal Technology, the NEET bill does. NEET has an imposing pedigree: The primary sponsor is U.S. Senator Robert Byrd, of West Virginia, who just became chairman of the Appropriations Committee. In early co-sponsorship was Senator Mitch McConnell, of Kentucky.

NEET is a priority of the National Mining Association. In March the association canvassed Capitol Hill with more than 20 teams of chief executive officers in support of the bill. Each team contained one CEO from a coal company, one from a hard rock company and one from a manufacturer member.

The teams made close to 100 calls on Senators and House members who sit at important points. There currently are 27 Senators in co-sponsorship of S.60. We plan to canvass again in September.

By combining the presence of mining, we have gathered co-sponsors in addition to members who normally involve themselves in coal legislation-members that include the likes:

* Of Harry Reid, of Nevada, the Whip and second-ranking Democrat in the Senate to the Majority Leader;

* And, of Jeff Bingaman, of New Mexico, the chairman of the Energy and Natural Resources Committee.

NEET's provisions are part of the Republicans' all-purpose energy bill, which was designed to move the President's energy recommendations before the change in control of the Senate; and there are incentives for clean-coal technology in the Democratic alternative as well.

In bodies as evenly divided as the present Senate and House, the wider the base of support the better. NEET proposes incentives to foster the early introduction of Clean Coal Technology:

* To upgrade existing capacity -- to raise output while improving air quality;

* To repower existing sites;

* And to add new capacity.

The NEET-authorized technologies include:

* State-of-the-art pulverized coal generation;

* Atmospheric-fluidized-bed combustion; Pressurized-fluidized-bed combustion;

* And integrated-gasification-combined-cycle generation.

The change in control of the Senate probably means the pace of legislation will be slower than expected -- no fast track now.

However, summer disruptions in power or renewed volatility in the prices of oil and natural gas could accelerate the schedule. It's been a mild summer so far. Meantime the pertinent regulatory reassessments and changes will move forward within the agencies.

There's been a change in perspective in Washington, one that accentuates the positive and recognizes realities.

The reality: The share of the U.S. coal reserve classified for underground mining is the energy equivalent of about twice the oil held by Saudi Arabia.

The positive: Longwall mining is a very efficient, safe and productive way to put much of it to public use for the common good. You will get better and more competitive because that's what longwall mining is about.

Longwall mining is a 21st century technology and critical to the nation's continued well-being in the 21st century.

The reality: Electric power is the critical commodity for a modern economy. Without electricity everything else either slows down or goes down.

The positive: The U.S. coal reserve represents 535-trillion killowatt-hours on standby -- a supply good for a least 250 years at present rates of consumption. Link coal with technology in a true national market, and coal becomes a formidable tool for building a comprehensive U.S. energy plan that works for growth: One that unifies environmental, energy and economic policy.

As the President's report said: "If rising U.S. electricity demand is to be met, then coal must play a significant role."

Coal is as modern as tomorrow.

May the new ventures you are talking about and thinking about in these days of promise come to fruition and find success.

America requires what only you can deliver.

Thank you, for your attention.

Daniel R. Gerkin is senior vice president, Public & Constituent Relations of the National Mining Association. His remarks were presented at the Keynote Luncheon of The Longwall USA 2001 International Conference & Exhibition in Pittsburgh, Pennsylvania, on dune 13, 2001.