By Mark Babineck

HOUSTON (Reuters) - Power providers could spend up to $64 billion to achieve government-mandated clean-air requirements, but the rules should not affect coal's status as the dominant U.S. fuel source, a new report said on Monday.

The study, produced by Cambridge Energy Research Associates, said more plants equipped with flue-gas desulfurization equipment actually will increase demand for cheaper, high-sulfur coal varieties.

"In general, (more desulfurization units) will result in Northern Appalachia and Illinois Basin coals taking market share from lower-sulfur and higher-cost Central Appalachia coal," according to the report, titled "Clearing the Air."

The only question will be timing, said report author Robert LaCount, a Cambridge Energy director. Pollution limits from the Clean Air Act, state laws and court-ordered consent decrees should start kicking in around 2010, with a second round hitting between 2015 and 2018, he said.

"Under virtually all future scenarios, the power sector will face large required reductions in sulfur dioxide, nitrogen oxides and mercury emissions," he said.

LaCount expects anti-pollution retrofits on coal-fired power plants to fall between $28 billion and $64 billion by 2020, with flue-gas desulfurization equipment accounting for most of the outlay.

"Although this level of capital investment will challenge the balance sheets of many generators, efficient coal plants will remain highly competitive versus natural gas-fired generation," LaCount said.

In fact, LaCount predicts that the value of large coal-fired plants that once were considered dinosaurs might increase in value with advanced pollution controls.