Oct. 24 (Bloomberg) -- Ron Surdam once scoured Wyoming for energy reserves, helping the least populous state in the U.S. become the nation's biggest coal producer.

Today, the state's top geologist is searching for underground chambers where carbon dioxide released by coal-fired power plants can be buried for eons.

Capturing carbon dioxide, pumping it underground and storing it there forever may be key to curbing the greenhouse gas that causes global warming. The problem for Surdam in Wyoming, which supplies 39 percent of U.S. coal and relies on the fuel for about 20 percent of annual revenue, is that already tight research funding may be squeezed further by the global financial crisis.

``We need an order of magnitude increase in investment across the board, and all that now gets much harder because of what's happening in the financial sector,'' said Brad Crabtree, program director for Minneapolis-based Great Plains Institute.

Surdam, director of the Wyoming Geological Survey, is racing to find ways to lower greenhouse gas emissions as Congress looks to limit their release. Coal-fired plants supply half the country's electricity and are the largest stationary source of carbon-dioxide emissions, having spewed out 1.9 billion metric tons in 2006, according to the U.S. Energy Department. Carbon dioxide, a byproduct of burning fossil fuels, is the main man- made pollutant blamed for global warming.

Restricting Emissions

``It's very likely that we're going to have some federal climate policy in the coming years, and it's going to change the economics of coal,'' said Steve Caldwell, 29, regional policy coordinator for the Pew Center on Global Climate Change in Arlington, Virginia.

Surdam, 69, was lured out of retirement in 2004 by Wyoming Governor Dave Freudenthal. Two years later, anticipating restrictions on greenhouse-gases, Freudenthal asked Surdam to determine whether pollution emitted from power plants could be stored underground.

``It's absolutely essential for the state to maintain the health of the coal industry,'' said Surdam.

Continuing current carbon emission levels may become more costly. Presidential candidates Barack Obama and John McCain both favor climate change legislation regulating how much greenhouse gas is released into the atmosphere.

Wyoming must prepare for the new rules, said Freudenthal, a Democrat. About 30,000 people, 10 percent of the state's labor force, work in natural resources and mining. The coal industry generated revenue of about $852 million in 2007, according to the Wyoming Mining Association. That was about 10 percent of the state's two-year budget of $8.1 billion.

Rising Coal Consumption

``The only way I can see this country getting through the next 30 to 40 years is with considerable consumption of fossil fuels,'' Freudenthal, 58, said in his office in Cheyenne.

Like Freudenthal, Obama and McCain favor increased funding for clean coal technologies.

Still, the worsening financial crisis may have a ``devastating'' impact on funding for large-scale projects to test carbon capture as government research funding faces a budget squeeze and commercial credit tightens, said Crabtree, 39, who advises business and political leaders on energy policy.

Worldwide, at least $3 billion a year is needed for pilot programs, at least triple current spending, said Howard Herzog, principal research engineer at Massachusetts Institute of Technology's Energy Initiative.

`Nowhere Near Enough'

Spending is ``nowhere near enough to achieve'' the Group of Eight industrialized countries' goal of developing 20 large ``carbon capture and storage'' plants by 2010, Paris-based International Energy Agency said in a report this week.

CCS systems aim to trap carbon dioxide, pressurize the gas into a liquid, then pump it deep underground. The process may be ready for commercial use by 2025, according to the U.S. Energy Department.

Energy companies already inject carbon dioxide into their oil wells to increase output.

Bringing the technology to commercial scale faces many hurdles. Utilities and governments must bring down the cost of building or retrofitting power plants to capture carbon dioxide, lay pipelines to transport the substance, find sites where it can be injected safely for an indefinite period, and enact laws governing the process.

``There's very limited experience with carbon capture technology and much of that experience is so far for systems that appear to be vastly too expensive,'' said Daniel Kammen, 46, director of the Renewable and Appropriate Energy Laboratory at the University of California, Berkeley.

`Unproven, Unsafe'

Building the first generation systems capable of capturing and storing 90 percent of carbon dioxide emissions could cost almost twice as much as a traditional coal facility, Herzog said. A conventional pulverized coal plant costs about $2 billion.

The technology is ``unproven, unsafe and wildly expensive,'' according to the environmental group Greenpeace, and ``perpetuates the use of the dirtiest energy source.'' Carbon dioxide may interact with minerals including iron and manganese that could contaminate water supplies, according to the group.

Freudenthal said abandoning coal is not realistic. The state passed the nation's first carbon storage legislation, which may be a model for governments worldwide, said Kurt Waltzer, with Boston-based Clean Air Task Force, an environmental group.

Canceled Project

The U.S. is trailing in the race to develop cleaner ways to burn coal. Norway's largest oil company, StatoilHydro ASA, is injecting 1 million tons of carbon annually beneath the North Sea. Saskatchewan Power Corp., a Canadian utility, is spending C$1.4 billion ($933 million) to build a 100-megawatt coal plant that can capture and pipe carbon dioxide to nearby oil fields.

A U.S. project similar to the Canadian effort, called FutureGen, was canceled in January by the Energy Department after costs climbed to $1.8 billion from $1 billion.

Fruedenthal said the U.S. approach is a ``disaster.'' Without financial incentives in a federal climate-change plan, companies won't commit to building the costly projects, he said.

Meanwhile, Surdam and his colleagues say they've discovered what may be one of the largest underground chambers in the U.S., capable of holding 26 billion tons of carbon dioxide, about the amount the U.S. emits in four years.

The limestone and sandstone formations, covered by 5,000 feet of low-permeability shale, will keep the material sealed in, he said.

``It's like a coffin,'' Surdam said.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

Last Updated: October 24, 2008 00:01 EDT