While the mainstream press focuses on Monday's symbolic "no confidence" vote over Attorney General Alberto Gonzales, the Senate also took up the energy bill, legislation with far-reaching implications for investors and at least one presidential candidate.

Fuel-efficiency standards for automakers, and renewable energy requirements for utilities will dominate the headlines, but amendments promoting coal-based fuels fall squarely into the "politics makes strange bedfellows" department.

It turns out Democratic presidential aspirant and Illinois Sen. Barack Obama has more in common with the U.S. Air Force than the Natural Resources Defense Council or Moveon.org when it comes to solving America's dependence on foreign oil.

Both Obama and the Air Force have determined the path to energy independence runs through the coal mines of Appalachia, Wyoming and, yes, Illinois. This unlikely pairing has both political and investing implications for those gaming the possibility of an Obama presidency.

Coal's political appeal is clear: There are more than 250 billion tons of recoverable coal reserves in the U.S., the equivalent of about 800 billion barrels of oil, or more than three times Saudi Arabia's proven oil reserves, according to the National Mining Association.

Thus, while the popular press, celebrities and a certain former vice president focus on "greenhouse gases," the energy bill is likely to contemplate recent legislative proposals such as taxpayer-funded loan guarantees to build coal-to-liquid plants.

Spearheading current legislation in the House are Rick Boucher (D., Va.) and Geoff Davis (R., Ky.), while Senate sponsorship is coming from Republican Jim Bunning of Kentucky, who co-sponsored the Coal-to-Liquid Fuel Promotion Act of 2007 with Obama in January.

Illinois ranks as the nation's seventh-leading coal producer, according to the Department of Energy. Nearly 32 million tons of Illinois coal were mined in 2005, generating nearly $1 billion in gross revenue, according to the Illinois Department of Commerce.

Such statistics help explain Obama's support for coal-based initiatives. But amid a January backlash from environmentally conscious Democratic primary voters, Obama largely ceded leadership on the issue to Bunning.

In May, Bunning and the late Craig Thomas (R., Wyo.) proposed to diminish the role of ethanol in the energy bill and mandate the use of 21 billion gallons of coal-based fuels by 2022. The amendment was defeated in the Senate Energy and Natural Resources Committee by a 12-11 vote on party lines. (Obama is not a committee member.)

Coal Gets Greens Red in the Face

Environmental groups oppose coal-to-liquids because nearly two times the carbon dioxide is emitted in the production of coal-to-liquid, or CTL, vs. traditional petroleum fuels.

"In a nutshell, CTL is worse than conventional fuels," says Elizabeth Martin Perera, climate policy specialist at the Natural Resources Defense Council, a not-for-profit organization. "CTL has higher life-cycle CO2 emissions than conventional fuels, even with carbon capture and storage."

Aaron Task sat down with TSC TV correspondent Farnoosh Torabi to discuss this story in our TV studio

.

As with many environmental groups, the NRDC also vigorously opposes coal mining itself.

"From underground accidents, mountain top removal and strip mining, to collisions at coal train crossings, to air emissions of acidic, toxic, and heat-trapping pollution from coal combustion, to water pollution from coal mining and combustion wastes, the conventional coal fuel cycle is among the most environmentally destructive activities on earth," according to a February NRDC position paper. "There is no such thing as 'clean coal.' "

Such vehement responses to anything coal-related may explain why Obama's official campaign Web site has only a passing mention of "clean coal" on its

Energy and the Environment page and nothing about the coal act he co-sponsored.

Backlash from environmental groups also may explain why Obama's position on CTL has evolved since January to the point to which "some observers believe Obama, worried that he will alienate radical environmentalists, is backing away from his support for coal liquefaction," according to an editorial at MiningGazette.com. "If Obama backs away from supporting it, he will betray an allegiance to special interests that we think most voters will find repugnant."

Obama supporters deny this claim, but stress the senator "only supports development of CTL fuels that emit less life-cycle carbon than conventional gas," says Ben LaBolt, a spokesman for the Senator. Obama also "introduced the low-carbon standard they would be forced to meet and championed technologies that would capture enough carbon for CTL to be an environmentally sound alternative," he adds.

Obama also supports FutureGen, a public-private partnership seeking to build a "coal-based near-zero-emissions" power plant; two of the four proposed FutureGen sites are in Illinois.

LaBolt declined to discuss FutureGen and referred questions regarding the campaign politics of Obama's CTL position to his presidential campaign. A campaign spokesman could not be reached for comment.

A nonprofit organization, FutureGen represents some of the world's largest coal companies and electric utilities, including:

American Electric Power

(AEP) - Get Report

,

Anglo American

( AAUK),

BHP Billiton

(BHP) - Get Report

, the

China Huaneng Group

,

Consol Energy

(CNX) - Get Report

,

E.ON U.S.

,

Foundation Coal

( FCL),

PPL Corp.

(PPL) - Get Report

,

Rio Tinto Energy America

( RTP),

Peabody Energy

(BTU) - Get Report

,

Southern Company

(SO) - Get Report

and

Xstrata Coal

, according to the organization's Web site.

For the record, none of those energy/utility companies are significant contributors to Obama's campaign, according to the Center for Responsive Politics, and Obama does not own any shares in the companies, according to his

2006 personal financial disclosure.

Not a Bad Alternative

How to sequester, or capture, the emissions of CTL production and create a value for it is always an issue, says Chris Edmonds, managing principal at Energy Research & Capital Partners and longtime contributor to

TheStreet.com

. "But we have to get a little realistic about all this green stuff: If we can sequester 'X' percent of the CO2 that comes as a byproduct of coal liquefaction, that's probably not a bad alternative compared to other possible energy creations."

Coal-to-liquid is not a new or untested technology: CTL has been a key element of South Africa's energy policy since the 1950s and powered Nazi Germany in the 1940s.

Overseas, South Africa's

Sasol

(SSL) - Get Report

-- in partnership with

Chevron

(CVX) - Get Report

and

Royal Dutch Shell

( RDS-A) -- already are running CTL facilities and are in the process of building more.

Among U.S. firms,

Syntroleum

(SYNM)

is pursuing coal-to-liquid technologies, as is

Rentech

(RTK)

, which is partnering with Peabody on various CTL projects in the Midwest.

Rentech has "the biggest intellectual property advantage" in the domestic market, says Edmonds, whose firm has no holdings or investment banking relationship with either firm.

But the reality is no ground has yet been broken on a single CTL plant in the U.S.

Perhaps Obama can therefore put his support of coal-to-liquids in the "vision-thing" department, for even advocates concede the technology to effectively capture carbon dioxide emissions created in the production of CTLs is a long way away.

Taking Coal to the Skies

The Air Force is "reasonably bullish" that a "reuse solution" for the C02 created in the production of CTL will be developed "within the next decade," William Anderson, USAF Assistant Secretary of Installations, Environment and Logistics, said in a recent

interview with TheStreet.com TV.

CTL can be a "carbon neutral fuel -- there is a visual path of how to get there," Anderson claims, noting CTL is "more favorable" than diesel and other fuels in terms of sulfur, particulates and nitrous oxide emissions.

The Air Force has an ambitious timetable to have its entire fleet certified to run on alternative fuels by the end of fiscal 2010, and 50% of its domestic fuel needs provided by alternatives by 2016. Based on current usage, that equates to 400 million gallons of synthetic fuels.

"All we need is domestic fuel that meets our specifications," Anderson said at a Coal-to-Liquids conference at the Princeton Club in New York last week. "Coal is the best bet."

Obama and Bunning's original coal-fuel-promotion act provided funding for the Air Force's R&D and testing program, plus authorization for the Air Force to sign 25-year contracts for almost a billion gallons a year of coal-based jet fuel.

As for the pending energy bill debate, "if Bunning comes forward with an amendment with language that makes

support for CTL more robust, I don't see why Obama can't vote for it," says Christine Tezak, a senior vice president at Washington research firm Stanford Financial Group. "It's a no-brainer way to meet the needs of both domestic security and prosperity for the coal industry while being aware of the environmental facts."

Green-Based Passions

Obama's presumed support for such legislation would be "consistent with his positions on energy security and he is not supporting

CTL without regard to environmental impact," Tezak continues. "My full expectation is other people will push for some CO2 control; it's easy for him to vote for that

and he doesn't have to be lead campaigner. I don't think it hurts him

politically to support that position at all."

Tezak says "the next couple of weeks could be very key for CTL industry." But she and Edmonds may underestimate the passions of the green caucus, a miscalculation Obama can ill afford on the march toward the 2008 election.

"We want to support him -- really -- but for many of us, climate change is a make-or-break issue in 2008," writes the Barack the Youth Vote blog, which is written by students ostensibly supporting his candidacy. "We need to be confident that our next president realizes the severity of the situation and is willing to take strong, even controversial, positions to save our climate."

Without mentioning Obama by name, MoveOn.org, a powerful Democratic grass-roots organization, sent an email to members on Monday declaring: "The Senate is about to vote on a big bill dealing with energy and the climate crisis. Massive subsidies for coal were defeated in committee. But we're not out of the woods yet, since one of the coal-friendly senators could sneak them back in again as an amendment just before the final vote."

As the energy bill debate unfolds, Obama must weigh the benefits CTL legislation will bring his Illinois constituents vs. the potential damage it can do to his presidential campaign. Should he choose to take the lead, however, the senator has an opportunity to use his famed eloquence to explain the potential benefits of coal-based energy in a way that may alienate fringe voters but could expand his appeal among moderates and even those who now see him as "left of Hillary."

Aaron L. Task is editor at large of TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;

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