June 12 (Bloomberg) -- The scope of the stalled FutureGen “clean coal” project in central Illinois is being scaled back by the Obama administration in an effort to revive the plans for a coal-fired power plant that spews fewer gases into the air.

The U.S. Energy Department said today it will support a modified version of the proposal, seeking to build a plant in Mattoon, Illinois, that can capture and bury 60 percent of its carbon emissions. The Bush administration had crafted the original idea for a plant that could trap almost 100 percent of emissions, and then canceled it after costs exceeded estimates.

The decision to trim the emissions targets “will improve reliability in the initial stages of the project,” Stephanie Mueller, an Energy Department spokeswoman, said in a statement.

The compromise with a group of energy and mining companies including American Electric Power Co., BHP Billiton Ltd. and Peabody Energy Corp. lets engineers begin designing the plant, which must still clear cost reviews and fundraising goals before construction could start. The 275-megawatt plant, which could see construction start as early as 2010, would get $1.1 billion in federal funding and $600 million in industry support.

“If we can bring the use of coal for electric-power generation to the same or near the level from natural gas, that is a significant improvement,” Senator Richard Durbin, an Illinois Democrat, said on a conference call with reporters.

Potential to Upgrade

FutureGen would be a component of government efforts to reduce emissions linked to global warming. The House of Representatives is considering climate legislation that would devote $10 billion to carbon capture and sequestration research and as much as $200 billion to subsidize construction of plants like FutureGen, said George Peridas, a Washington-based scientist for the Natural Resources Defense Council.

“The only reason why they would cut back the emissions reduction targets is to make the whole endeavor cheaper,” Peridas said. “If they pass a climate bill in Congress, you would have serious incentives for carbon capture and sequestration deployment.”

The plant could be upgraded to capture as much as 90 percent of emissions, Durbin said. It could cost $1.8 billion or more to build, he said, adding he hoped the FutureGen Alliance, a group of 11 companies that will fund the plan, will grow in size, and pitch in more than $600 million, if needed.

There are ways to cut the price tag to $1 billion, while still meeting Energy Department goals, said Frederick Palmer, senior vice president of government relations for Peabody and a board member of the FutureGen Alliance.

‘Shovel Ready’

“FutureGen is the ultimate shovel-ready, economic stimulus project,” Palmer said in a statement. “It has the power to create a new, clean energy model that will drive low-carbon, high-growth economies.”

In addition to Peabody, BHP Billiton and American Electric Power, the FutureGen Alliance includes Southern Co., Consol Energy Inc., E.ON AG, Anglo American Plc, Rio Tinto Plc, Foundation Coal Holdings Inc., an Xstrata Plc unit and China Huaneng Group.

The Bush administration had originally pushed FutureGen as a flagship project for the clean use of coal to generate electricity, yet abandoned the idea as cost estimates soared.

Illinois lawmakers and project organizers have been working to revive the plant, saying it would create as many as 700 construction and 100 permanent jobs while reducing emissions that scientists have blamed for global warming. The economic stimulus measure passed in February provides $3.4 billion for carbon-capture projects including $1 billion for FutureGen.

Technological Fantasy

Illinois has the second-largest recoverable coal reserves in the U.S., behind West Virginia, Energy Department figures show. The FutureGen plant would be able to power roughly 220,000 homes in central Illinois, according to department estimates.

Coal generates about half the electricity in the U.S. and 30 percent of the greenhouse-gas emissions that contribute to global warming. Environmental groups, including one led by former Vice President Al Gore, have run television ads describing “today’s clean-coal technology” as a fantasy.

To contact the reporters on this story: Daniel Whitten in Washington at dwhitten2@bloomberg.net.

Last Updated: June 12, 2009 15:10 EDT