Seeking Clean Fuel for a Nation, and a Rebirth for Small-Town Montana

By TIMOTHY EGAN
November 21, 2005

HELENA, Mont., Nov. 15 - If the vast, empty plain of eastern Montana is the
Saudi Arabia of coal, then Gov. Brian Schweitzer, a prairie populist with a bolo
tie and an advanced degree in soil science, may be its Lawrence.

Rarely a day goes by that he does not lash out against the "sheiks, dictators,
rats and crooks" who control the world oil supply or the people he calls their
political handmaidens, "the best Congress that Big Oil can buy."

Governor Schweitzer, a Democrat, has a two-fisted idea for energy independence
that he carries around with him. In one fist is a shank of Montana coal, black
and hard. In the other fist is a vial of nearly odorless clear liquid - a
synthetic fuel that came from the coal and could run cars, jets and trucks or
heat homes without contributing to global warming or setting off a major fight
with environmental groups, he said.

"Smell that," Mr. Schweitzer said, thrusting his vial of fuel under the noses of
interested observers here in the capital, where he works in jeans with a border
collie underfoot. "You hardly smell anything. This is a clean fuel, converted
from coal by a chemical process. We can produce enough of this in Montana to
power every American car for decades."

Coal-to-fuel conversion, which was practiced out of necessity by pariah nations
like Nazi Germany and South Africa under apartheid, has been around for more
than 80 years. It is called the Fischer-Tropsch process. What is new is the
technology that removes and stores the pollutants during and after the making of
synthetic fuel; add to that high oil prices, which have suddenly made this form
of energy alchemy feasible. The coal could be converted into gasoline or diesel,
which would run cars, or into other types of fuel.

With coal reserves of about 120 billion tons, Montana has one-third of the
nation's total and a tenth of the global amount. Most of it is just under the
prairie grass in the depopulated ranch country of eastern
Montana. Mr. Schweitzer wants to plant coal-to-fuel factories in towns that have
one foot in the grave. It may not provide enough fuel to wean the West off
imported oil, but it may be enough to show the rest of the country that there is
another way, he said.

"This country has no energy plan, no vision for the future," said
Mr. Schweitzer, who spent seven years in Saudi Arabia on irrigation
projects. "We give more tax breaks and money for oil, and what do we get?
Three-dollar gas and wars in the Middle East. If you want to control the destiny
of this country, it's going to be with synthetic fuels."

For now, the governor's ideas are just speculative. Although several energy
companies have expressed interest in building coal-to-fuel plants, no sites have
been chosen or projects announced. Because it would be such a novel, financially
risky undertaking, companies have been hesitant to go the next step. But
Mr. Schweitzer hopes for a breakthrough, with several plants up and running
within 10 years, and he says he does not need legislative approval to give the
go-ahead if companies commit.

The governor has met with the president of Shell Oil, the chairman of General
Electric and other captains of big energy, as well as with smaller companies
that develop synthetic fuels.

"This is not a pipe dream," said Jack Holmes, the president and chief executive
of Syntroleum, an Oklahoma company that has a small synthetic fuels plant and
wants to build something bigger. "What's exciting about this process is you
don't have to drill any wells and you don't have to build any infrastructure,
and you'd be putting these plants in the heartland of America, where you really
need the jobs."

Certainly jobs are a big motivating factor. Montana is a poor state and ranks
last in average wages. Mr. Schweitzer, whose approval rating is near 70 percent,
says thousands of good-wage jobs can be gained in towns that are dying.

He is also promoting wind energy and the use of biofuels, using oil from crops
like soybeans as a blend. The governor signed a measure this year that requires
Montana to get 10 percent of its energy from wind power by 2010, a goal he said
would be reached within a few years. Still, the Big Sky State, with a population
under a million, has fewer people than the average metro area of a midsize
American city, and its influence is limited. The governor acknowledged as much.

"I'm just a soil scientist trying to get people in Washington, D.C., to take the
cotton out of their ears," Mr. Schweitzer said with somewhat practiced
modesty. "But if we can change the world in Montana, why not try it?"

By some estimates, the United States has enough coal to take care of its energy
needs for 800 years. The new, cleaner technology stores the pollutants in the
ground or processes them for other uses.

The United States imports about 13 million barrels of oil a day. To replace that
oil would be a monumental undertaking, with hundreds of coal-to-fuel plants. But
Mr. Schweitzer points to South Africa, where a single 50-year-old plant provides
28 percent of the nation's supplies of diesel, petrol and kerosene. But the
South African plant uses old technology that does not remove the pollutants.

In this country there is a small factory in North Dakota that converts coal to
natural gas. And Pennsylvania is moving forward on a plan to produce diesel from
coal. Neither of these plants would come close to the scale of the plants
Mr. Schweitzer is envisioning in Montana, where it would cost upward of $7
billion to build a plant that could turn out 150,000 barrels of synthetic fuel a
day, for about $35 a barrel.

One surprising thing, thus far, is that many people in the environmental
community have not rejected the coal-to-fuel idea out of hand. Environmentalists
like the process for producing clean fuels from coal. They say the technology is
there and it can be done in coal-rich empty quarters of eastern Montana, North
Dakota or Wyoming.

Still, they worry about strip mining the ranch country and about whether there
will be a global commitment to make synthetic fuels the clean way rather than in
a dirtier way along the lines of a plan in China, where the government has
joined with major global oil companies to build about a dozen coal-to-fuel
plants.

"It's a very interesting moment in energy history," said Ralph Cavanagh, an
energy policy expert at the Natural Resources Defense Council, one of the
nation's most powerful environmental groups. "Certainly this process can be
done. This is a promising direction. The question is, Are we going to do it
clean?"

Because there is no federal mandate to process coal in a way that reduces the
emissions that can cause global warming, Mr. Cavanagh says he fears that any new
coal operations will simply add new pollutants to the atmosphere. Coal plants
without the cleaning technology are the biggest source of man-made carbon
dioxide, a gas that is considered a central contributor to the warming of the
earth, according to many studies.

There is another problem as well. Some Montana ranchers and environmentalists
who fought big coal-mining proposals in the 1970's are worried about what new
mining will do to the grasslands.

"The governor's idea is a big one," said Helen Waller, a farmer who is active
with the Northern Plains Resource Council, a Montana environmental group. "I'm
not sure it's the best one. I don't think there's any such thing as clean
coal. And even if there were, it would require a lot of productive ranchland to
be ripped up."

Mr. Schweitzer said the mining could be done in a way that restored the land
afterward. "I call it deep farming," he said. "You take away the top eight
inches of soil, remove the seam of coal, and then put the topsoil back in."

But given Montana's history of abuse by mining companies - the giant open-pit
mine in Butte is the most visible legacy of a bygone era - some Montanans remain
skeptical.

"I just think there's a better way that doesn't involve tearing up productive
ranchland," Ms. Waller said.

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Saving the Environment, One Quarterly Earnings Report at a Time

By CLAUDIA H. DEUTSCH
November 22, 2005

A few years ago, scientists at Cargill Inc. learned how to make rigid,
transparent plastics from corn sugars. There was just one problem: they cost a
lot more than the oil-based plastics they would replace.

But that was before the price of oil shot up and companies came under pressure
from consumers and investors to find economically sound ways to adopt "green"
packaging and other environmentally friendly products and processes. This year,
Wal-Mart, Wild Oats Market and many other retailers, as well as food suppliers
like Del Monte and Newman's Own Organics, all embraced corn-based packaging for
fresh produce.

Sales at NatureWorks, the Cargill subsidiary that makes the plastic, grew 200
percent in the first half of this year over the period last year. "The early
adopters were more influenced by environmental concerns than costs," said
Kathleen M. Bader, chairwoman of NatureWorks. "But now we're competitive with
petrochemicals, too."

Cargill is one of several companies profiting from the concerns - of
shareholders, communities and consumers - about global warming, leaking
landfills and other potential environmental hazards. Huge companies like General
Electric and Chevron now have separate businesses to market what they are
calling environment-friendly products.

And new companies and university projects appear each day. Cornell University's
College of Engineering, for one, expects to have a commercial process for using
bacteria to recoup energy from wastewater treatment within three years.

"There are a lot of creative types looking for the next big thing," said Bob
Sheppard, deputy director for corporate programs at Clean Air-Cool Planet, a
nonprofit environmental education organization. "Well, these days, environment
is it."

It is impossible to quantify the size of the environmental industry. Many of the
newer companies are privately held. And many "green" products - more efficient
power generators, say, or biodegradable plastics - are parts of other
industries.

But investors are clearly funneling ever more money into green
technologies. Last year, the California Public Employees Retirement System, or
Calpers, said it would invest $200 million in what it called the "burgeoning
environmental technology sector." This year, 27 members of the Investor Network
on Climate Risk promised to invest $1 billion in companies with green products.

"The environmental industry is about to take off, as more investors realize that
they can reap returns from cleaner technologies," said Dan Bakal, director of
electric power programs at Ceres, a coalition of investors and environmental
organizations that runs the investor network.

Entrepreneurs say the change is palpable. Northern Biodiesel, a small company in
Ontario, N.Y., recently got financing for a plant to turn cooking oils and
agricultural waste into diesel fuel. "Banks used to dismiss me as a tree-hugger
when I tried to borrow for an environmentally advantaged product," said Bob
Bechtold, the company's vice president.

In one sense, the current environmental boon is a replay of the 1970's, when
regulations spawned a profitable industry to sell electrostatic precipitators,
air scrubbers and other air cleaning devices. New federal rules limiting diesel
emissions are spurring sales now, too.

But this time, other powerful motivators are at play. The United States did not
sign the Kyoto treaty regulating greenhouse gases, but companies feel pressure
to reduce gas emissions to do business comfortably in countries that did
sign. Moreover, "people know that regulations will come here, too," said Judi
Greenwald, director of innovative solutions at the Pew Center on Global Climate
Change, a nonprofit research group.

Even without rules to force their hands, companies are responding to societal
pressures to act in an environmentally aware manner. "Investors believe it is
simply not acceptable to be environmentally irresponsible," said Abby Joseph
Cohen, chief United States investment strategist at Goldman Sachs, which just
announced its own comprehensive environmental policy.

Others note that companies can no longer avoid the issue. "Shareholders are
pressuring everyone to disclose what they are doing in the environmental arena,"
said Michael J. Johnston, executive vice president of the Capital Group
Companies, a money management firm.

The reasons are as much financial as moral, added Stanley G. Deutsch, a research
analyst at Babson Capital Management. "Pension accounting, legal problems, and
these days, environmental problems, all can be claims on cash flow," he said.

In many cases, of course, skyrocketing prices of oil and gas have given a boost
to clean technologies. Procter & Gamble is substituting vegetable oils for
petroleum derivatives in Tide detergent and Head & Shoulders shampoos, and
rivals like Colgate and Kimberly-Clark are exploring alternative ingredients as
well. Wal-Mart is looking at ways to burn used motor oil and cooking grease as
fuel.

Even at traditional energy companies, sales of oil substitutes are
booming. Eastman Gasification Services, a unit of the Eastman Chemical Company,
helps companies turn coal into a cleaner-burning fuel or raw material. David
Denton, director of business development, says that sales are accelerating and
that Eastman is now exploring ways to make chemicals from petroleum residues,
the substances left when sulfur is removed from oil.

Air Products and Chemicals Inc., based in Allentown, Pa., has been selling
refinery hydrogen, which is used to remove sulfur from oil, for more than a
decade. But now Air Products is building six plants, "as many as we've built at
one time in our history," said Scott A. Sherman, the company's vice president
for energy and process industries.

Mark R. Gulley, an independent analyst who follows industrial-gas companies, is
not surprised. "High fuel prices have made refinery hydrogen a hot growth
driver," he said.

G.E., too, acknowledges that many products included in its much-promoted
"ecomagination" program were developed to enhance energy efficiency. The
products are either inherently green (like wind power), 10 percent greener than
earlier products (more efficient jet engines) or meet government standards for
energy efficiency (new power generators).

The current stable of 17 ecomagination products represented $10 billion in sales
in 2004. Lorraine Bolsinger, vice president for ecomagination, predicts that by
2010, G.E. will be selling $20 billion of ecomagination-tagged products each
year.

"We wouldn't sell anything under the banner of ecomagination if it wasn't green,
but there must be an economic component, too," she said.

Still, the appetite for green energy is growing independently of high oil
prices. Many new technologies "are tied less to the cost of energy than to the
notion of making the world cleaner," said John T. Preston, a senior lecturer on
entrepreneurship at the the Sloan School of Management at M.I.T.

In fact, much of the research into oil-free products predates the oil price
spike. Since 2000, DuPont has been slowly replacing petrochemicals with
ingredients like corn. Today, about 83 percent of its products use
petrochemicals; it expects to drive that below 75 percent by 2010. "We are
looking at our entire portfolio to see where we can make substitutions," said
Thomas M. Connelly Jr., chief science and technology officer.

Similarly, in 2000, Chevron started Chevron Energy Solutions to promote energy
conservation products. "We don't see a correlation between the price of crude
and our customers' interest in running green facilities," said James C. Davis,
the unit's president. For example, Mr. Davis said that he counted as clients
many universities whose electric bills had not increased, but who wanted to
promote their "green campus" to prospective students, faculty members and
donors.

The flip side - avoiding negative publicity - is an equally powerful
motivator. CSI Leasing, which leases personal computers, was worried that
discarded equipment would end up leaching chemicals into landfills. So last
year, Executive Personal Computers, a CSI subsidiary that sells used computers,
added a sideline business: collecting used computers from CSI and others, then
stripping them into steel, plastic and other components to sell as scrap.

That business will account for about 8 percent of the subsidiary's $20 million
in sales this year. Daniel E. Fuller, its president, predicts that it will
provide half of sales in a few years. "No company wants a computer with its
serial number showing up in an illegal dump," he said.

Still, the biggest boost to green technologies is the good will bonus that
environmental responsibility can confer. Wal-Mart, under fire for some labor
practices and facing resistance to proposed new stores, is rolling out a
program, already at 584 stores, to recycle shrink wraps, shopping bags and other
plastic items that once went to landfills.

Wal-Mart also has experimental stores in McKinney, Tex., and Aurora, Colo.,
where it is testing the use of trees and grasses, particularly in parking lots,
to absorb carbon dioxide emissions and tainted water; wind and solar energy to
generate electricity; use of recycled materials for outdoor pavements;
formaldehyde-free store flooring; and ways to recycle construction debris.

The Wal-Mart connection is already putting struggling suppliers on the
map. Rocky Mountain Recycling showed Wal-Mart how to use its compactors to
sandwich used plastic between layers of cardboard, making it easier to
transport. Rocky Mountain carts the bales away, separates the paper and plastic,
and sells them separately.

Rocky Mountain now has 140 employees and 26 trucks; before Wal-Mart signed on
last year, it had 90 workers and 7 trucks. Rocky Mountain has applied for a
patent on the baling process, and plans to license it either to Wal-Mart itself,
or to other waste haulers. "In the next three to five years," said Jeffery
A. Ashby, sales and marketing manager for Rocky Mountain, "we're going to be a
$100 million company."