Common Tragedies

Thoughts on Environmental Economics

Backstop

Posted by Daniel Hall on July 28, 2008

I have been wondering when this was going to happen — with oil prices this high and a decided shift in rhetoric coming from ‘official’ venues such as the IEA about long-term supply, it seemed like it could only be a matter of time before someone would construct a coal-to-liquids (CTL) plant.

Coal is abundant and still relatively cheap (despite recent price increases).  And the article notes that you can use really cheap grades of coal for the CTL process.

It seems to me like CTL puts a backstop on how high oil prices can remain in the long run, at least if coal production is not constrained.  Of course in a world with a price on carbon emissions the CTL fuel is going to have to be a good bit cheaper than oil on a production-cost basis, since CTL involves about 3 times the amount of greenhouse gas emissions as conventional oil.

The MIT report on coal — my go-to reference for all things coal — estimates that liquid fuels can be produced using CTL for about $50 per barrel, and that you can add on carbon capture and storage relatively cheaply, raising the price to $55 per barrel [Appendix 3.F].  (NB: this assumes you build in CCS from the beginning and that you can clear the siting and technical hurdles involved in CCS.)  That is a relatively low backstop.  While I’m personally skeptical that the long-term price for oil will be quite that low, this does at least put in perspective current forecasts from the EIA or IEA that the long-term price of oil will be around $70-80 per barrel.

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2 Responses to “Backstop”

  1. [...] think about the possibilities here for a moment. Daniel Hall at Common Tragedies recently noted that expensive oil has made coal-to-liquid fuels viable. If we do what the American Scenesters [...]

  2. [...] Daniel Hall, I see that we’ve now got our first live CTL plant proposal. We’re not talking about a [...]

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