Fort Lauderdale, Florida (Platts)--15Mar2010/722 pm EDT/2322 GMT

Coal-fired utilities that opt to burn high-sulfur Illinois Basin coal instead of Central Appalachian coal may face the prospect of emitting more carbon dioxide from scrubbers, a Southern Company official warned Monday.

Chris Hobson, Southern's senior vice president and CFO, said at the Platts 18th Annual Coal Properties and Investment conference in Fort Lauderdale, Florida, that Illinois Basin coal would always require scrubbing at coal-fired plants, a process which produces additional carbon dioxide.

Central Appalachian coals may or may not require scrubbing, while Powder River Basin coals do not need to undergo the scrubbing process, which is mainly used to remove sulfur dioxide.

With the US Environmental Protection Agency's upcoming New Source Review provisions of the Clean Air Act for CO2, utilities face a real risk that, as they drive down SO2 emissions, they would be increasing their CO2 emissions.

Hobson's cautionary remarks followed earlier, more upbeat presentations by a Peabody official who talked about the outlook for Illinois Basin coal.

During his talk, Brian Galli, head of coal sales at Peabody, predicted increasing coal volumes from the Powder River Basin and the Illinois Basin would offset production declines of Appalachian coal. Looking ahead to 2014, Galli said he expects Powder River Basin and Illinois Basin coals to meet more than 80% of US demand.

Forward also pointed to Illinois Basin coal as a low-cost replacement for Appalachian coal, currently the most expensive coal in the market. He said Illinois Basin coal production was up 4% in 2009, while overall US coal production was down 8%.

Looking ahead, he said all the activity seems to be in the Illinois Basin, which has three new mines under development.

J. Hord Armstrong, chairman of Armstrong Coal, said that Illinois Basin coal is uniquely positioned to increase its market share because of its proximity to coal-fired generation, concentrated in the Midwest, despite the additional CO2 it would generate.

--Amena Saiyid, amena_saiyid@platts.com