With a 250-year coal supply waiting below its surface and a $1 billion coal industry above, Illinois has much at stake as Congress debates a mandatory cap and trade system or a tax on carbon emissions.

As discussions drag on over the benefits and costs of renewables, fossil fuels and nuclear energy, the coal industry sits in limbo, caught between the threat of higher costs from carbon taxes and the pressure to develop expensive clean coal technology, all without the federal incentives that carbon-free energies have received.

Both a cap-and-trade system and a carbon tax would mean an increase in the price of producing coal. If a carbon tax were implemented, for every $10 per ton of carbon dioxide, Illinois’ electricity rates would increase by two-thirds of a cent per kilowatt-hour, said Charles Komanoff, co-founder of the Carbon Tax Center in New York City. Chicago’s Commonwealth Edison currently charges 10 cents per kilowatt-hour.

While many electricity producers would feel the impact of a tax on emissions, a carbon tax would target coal more than any other industry, Komanoff said.

“A carbon tax targets the use of coal very clearly and aggressively,” Komanoff said. “The burning of coal to make electricity is responsible for one-third of carbon emissions in the U.S.”

Coal is currently a vital part of America’s energy mix. According to Jonathan Cogan, energy information specialist at the Energy Information, Americans consume 1.12 billion tons of coal each year. In 2007, he said, coal accounted for almost half of electricity in the U.S.

Michael Dudas, coal industry analyst at New York-based Jefferies & Company Inc., said an increase in the price of coal, the cheapest of the fossil fuels, would have catastrophic effects for the industry, including higher prices, plant shut-downs and outsourcing production overseas.

Dudas said the best way to encourage coal companies to cut carbon emissions was to raise the price of production, but the fear within the industry is that clean technologies won’t be tested and ready before a cap-and-trade system or a carbon tax is implemented.

Bill Hoback, head of the Illinois coal development bureau, a public-private consortium of coal producers, said the coal industry was moving “as fast as we can.”

“We’ll rise to the challenge of whatever regulations are put in place,” Hoback said, “Gasification and carbon storage are an ideal fit for however they want to regulate carbon.”

But such promises often collide with hard reality. In December, President Bush halted FutureGen Industrial Alliance’s plans to build a $1.5 billion coal gasification plant in Mattoon, Ill., citing the project, which was both publicly and privately funded, as too expensive.

The FutureGen plant in Illinois planned to use non-hybrid gasification technology, which would have contained nearly all carbon emissions.

Now, a second attempt to build a coal gasification plant in Illinois – this one costing an estimated $3.5 billion -- is being closely watched by the energy industry.

Tenaska Inc., an energy company based in Omaha, Neb., said its proposed hybrid gasification coal plant in Taylorville, Ill. would generate enough electricity to power more than 500,000 homes in the area.

The hybrid gasification technology allows coal to be used to generate power as cleanly as natural gas by cutting carbon dioxide emissions by at least 50 percent.

Illinois taxpayers would have to chip in, however. The Taylorville plant’s project manager, Bart Ford, estimated that state funding of the project could result in no more than a 2-percentage-point tax increase in the state.

Ford added there would be benefits locally, such as the creation of up to 1,500 jobs during the four years the Taylorville plant is under construction. Once completed, it would provide long-term employment for between 120 to 130 workers, he said.

The team behind the proposed facility is preparing a detailed engineering survey to estimate eventual costs for the facility, to be completed by next January. It will then be presented to the Illinois general assembly for approval, Ford said.

At the same time, and with a new administration in Washington, Hoback said the alliance is pushing for renewed government funding for the Mattoon, Ill. plant. The FutureGen plant would produce 275 megawatts of electricity – enough to power 150,000 homes – while nearly eliminating emissions, Hoback said.

“If we can find the right technology to use our resources, we don’t have to be as dependent on other countries [for energy], Hoback said. “It certainly won’t be the answer to all of America’s energy needs, but it is a part of it along with other technologies.”

Alongside fears that a carbon tax or mandated cap-and-trade program would raise production costs, expensive new technology could also raise consumers’ electricity rates.

John Gasser, spokesman for the Department of Energy, which is funding demonstrations of clean coal technologies at several sites nationwide, said the goal is to keep the increase in the price of production from new technologies to 10 percent of the price of coal now.

The Illinois coal industry was in a broad decline beginning in the mid-1980's as concerns about sulfur and nitrogen emissions reduced demand in favor of coals containing lower sulfur. But the industry has seen something of a resurgence in recent years, Dudas said, as coal companies implemented technology to lower sulfur content.

“It’s not back to where it was 25 years ago, but they’ve improved from the low,” Dudas said.

In a similar vein, the coal industry is optimistic that new carbon-free technology could spur further growth in the Illinois coal industry.

“Illinois is in a position for a leadership role in clean coal technology,” Ford said.

But that’s potentially years away, and in the meantime the industry is waiting for a clear signal from Congress before embarking on expensive new technology.