Converting Coal Into Liquid Fuels Is Dumb

A proposal to convert South Island lignite (coal) into liquid fuels is bouncing around the 'net.
This is a dumb idea.
Replacing only a third of our conventional fuels with FT synthetic fuels made from lignite would increase New Zealand's greenhouse gas emissions by more than 25 percent*. That's because coal-to-liquid facilities emit lots of carbon dioxide. That is on top of the greenhouse gas emissions from engines, which are practically identical for conventional fuel, and for fuel made from coal.
Coal to liquid fuel will increase the carbon footprint of all New Zealand exports, including agricultural products and tourism. And that, in turn, would hurt our economy.

Synthetic Fuel Production
Coal promoters have been hyping up a coal-to-liquid (CTL) facility in the South Island for several years. They point out that this would satisfy New Zealand's diesel requirements.
The only proven way of making fuel suitable for modern diesel engines is the Fischer-Tropsch synthesis process. Although there are other ways of making coal into liquid fuels, we can safely assume this is what they are talking about.
The Fischer-Tropsch process can convert various raw materials into high-quality liquid fuels (petrol, diesel, jet fuel). The quality of the finished product depends on the characteristics of the Fischer-Tropsch (FT) synthesiser, but not upon the raw material. However, the impact of carbon dioxide emissions from FT fuels depends on the raw material. Made from wood, they are carbon-neutral and will not affect the global climate.
Coal is a fossil fuel, which means that FT fuels made from coal will exacerbate global warming. There are no ifs, buts, or maybes about that.
Based on published information, we know that FT diesel is practically a drop-in replacement for present-day diesel. We also know that lighter FT hydrocarbons, known as naphtha, can be upgraded into good quality petrol.
If the proposed CTL facility were designed to focus on diesel, it would inevitably produce naphtha as a byproduct. This would account for about 20% of its output (on an energy basis).
New Zealand consumes roughly equal quantities of petrol and diesel, so we can be quite certain that the New Zealand fuel market can absorb all the CTL naphtha this hypothetical coal-fed diesel factory can make.

Greenhouse Gas Emissions
In 2007, New Zealand's greenhouse gas emissions totaled 75.55 million tonnes (CO2-e), excluding the absorption of greenhouse gases by growing forests and land-use changes. If we take into account the effect of land use, land use changes, and forests, the total was 51.71 million tonnes (CO2-e).
Of that, 7.759 million tonnes resulted from diesel consumption.
Suppose we used CTL diesel instead of conventional diesel.
Based on the results of a 2008 analysis by New Zealand scientists**, I calculate we would have emitted 18.59 million tonnes (CO2-e) from CTL diesel (10.75 million tonnes more than ordinary diesel)
It doesn't end there.
In the process of converting CTL naphtha into petrol and burning it up in our engines, we would have produced an extra 2.63 million tonnes, compared with ordinary petrol.
Overall, CTL fuels would have produced an extra 13.38 million tonnes.
Excluding LULUCF, our greenhouse gas emissions would increase by 17.7 percent.
Overall, converting lignite into CTL fuels would increase total greenhouse emissions by more than 25 percent.

Agricultural Greenhouse Gas Emissions
Agriculture accounts for 12 percent of New Zealand's diesel consumption. CTL diesel would directly increase agricultural greenhouse emissions by about 3.5 percent.
But.
Agricultural products are useless until they have been transported to markets. That requires diesel. The carbon footprints of our agricultural exports would grow by more than 3.5 percent.

Can't We Bury It?
No.
So-called carbon capture and sequestration (CCS) systems take carbon dioxide from the factory smoke-stack and pump it into the ground. This can only work if the ground happens to contain a suitable geological structure, such as a worked-out gas field. We don't know if Central Otago's underground structures can safely hold all this carbon dioxide. There's no point spending a lot of money and energy pumping it into the ground if it leaks out within a few years or decades.
CCS increases operating costs. If it were added to the proposed CTL facility, we would quite likely find that CTL fuels end up costing more than carbon-neutral FT fuels made from wood chips.
Unless coal promoters can point to an existing CTL facility with fully-functional CCS technology, I will not believe they have any intention of installing CCS technology on their proposed facility. To do so would involve developing new technology.
Even if someone does successfully invent CCS technology, coal promoters would need to demonstrate that the carbon dioxide will remain underground until the onset of the next ice age, in about 30,000 years, before I will accept that CCS technology can reduce anthropogenic climate change.
That will take, oh, I'd say about 20,000 years of practical testing and monitoring.

The Real Impact
British and European consumers are already avoiding products with large carbon footprints. CTL liquid fuels boost the carbon footprints of all New Zealand exports, making our products less attractive to foreign consumers. We will lose sales. We can be quite certain of that.
Farmers will quite likely respond by cutting production: either intentionally, in response to falling sales; or accidentally, when they go broke.

Is that what we want?

--
* Updated to take account of LULUCF, 4 June 2010
** Hall & Jack, 2008: Hall, Peter; & Michael Jack: Bioenergy Options for New Zealand – Pathways analysis. Rotorua, NZ: Scion, 2008. http://www.scionresearch.com/bioenergy+report.aspx, visited 20 Oct 2008.