Federal Environment Minister Greg Hunt anticipates that clean coal technology will be available to cut emissions from coal-fired power stations within three to five years.

It is a misleading claim: the technology is years from commercial viability, let alone from being rolled out at scale, and the claimed emissions reductions pale in comparison to the cuts that would be made if cheaper renewable energy were chosen instead.

As Hunt told the ABC’s Four Corners a fortnight ago:

“The technology which is emerging now and which I think will be available over the next three to five years cleans up very significantly, not perfectly but very significantly by up to 30 to 50% the emissions from current generation. That can go around the world, and nothing would make a bigger difference, along with protecting the great rainforests, to reducing global emissions …”

Hunt’s office confirmed in writing that the minister was referring specifically to Direct Injection Carbon Engine (DICE) technology — modified large diesel engines running on a mixture of coal and water, being developed in conjunction with the Commonwealth Scientific and Industrial Research Organisation. But analysis of cost forecasts for DICE, done by the Bureau of Resources and Energy Economics, suggests the technology is uncompetitive.

In 2012, BREE did a “techno-economic” assessment of DICE, assuming it has been commercialised by 2020, based on CSIRO figures, estimating the turnkey capital cost of new 100MW engines at $2285 per kilowatt of generation capacity installed. (CSIRO believes it should be possible to get that lower, around $1800/kW, but the costs of competing renewable technologies is also falling.)

Energy consultant Bruce Mountain, director of Carbon Market Economics, says at $2285/kW DICE is much more expensive to build than gas-fired power stations, with open-cycle gas turbines used for peak power generation costing around $500/kW and combined cycle gas turbines used for baseload power costing $1000/kW. DICE would be slightly cheaper to build than wind, currently at $2700/kW and significantly cheaper than a new advanced black coal plant at around $3500/kW.

But when it comes to the delivered cost of electricity, wind farms win hands down, delivering power at a wholesale price of around 8c/kWh, compared with 10-15c/kWh for DICE. Even without a carbon price, according to electricity cost forecasts, wind beats DICE.

Rising gas prices could make DICE more competitive with new gas-fired plants. Gas prices are set to double or even triple from their historic level of about $4 per gigajoule, as east coast markets reach export parity, and DICE proponents say their technology will be competitive at gas prices above $6/GJ and higher.

DICE say its clean coal fuel could be made from brown coal for an estimated $3-$4/GJ, but Bruce Mountain says this lower fuel cost would be offset by higher capital costs. If DICE were to be used for peak power generation — or backup for intermittent renewables — the lower fuel cost would be irrelevant because peak power prices are so high and there are better alternatives. “Even the cheapest large-scale peaking resource is facing competitive pressure from demand response and possibly also storage,” he said. “At best [DICE] competes with black coal generation, but I’m baffled to see who is going to be building that.”

Given overall electricity demand is flat to falling, and we have a surplus of generating capacity, there is no need for the proposed DICE engines, unless there is some other objective like emissions reduction. But if that’s the objective, wind is zero emissions and delivers cheaper electricity.

John White chairs the DICE network of companies and agencies developing the technology, and is an executive and founding shareholder of Ignite Energy Resources, which recently won a $20 million state-Commonwealth grant to trial a technology to make, among other things, liquid fuel for DICE engines from Victoria’s vast brown coal reserves. White, who is well-connected politically and was previously chair of John Howard’s Uranium Industry Framework, claims the capital costs will be lower than BREE forecast — around $1200-1400/kW. “DICE is the economic back-up that renewables need, as batteries are too expensive and polluting,” he said.

White told Crikey that CO2 emissions from DICE would be around the same as from open cycle gas turbines — that is, about half that of current brown coal fired electricity generation in Victoria. “This is why private enterprise is willing to risk investment in the development of Ignite’s lignite upgrading technology and the DICE testing program. It halves CO2 emissions and will be eligible for Emissions Reduction Funding under Direct Action policies.”

Mountain disagrees. “Yes, if you switched out the existing brown coal generation with this new capacity, your greenhouse gas emissions would go down. But they’d go down to practically nothing if you built the alternatives such as wind, which is going to cost you less anyway.”

That’s assuming the DICE program hits all its targets — trials go well, construction and operating costs come in as expected, and the roll-out goes smoothly — and does not factor in risks like the reintroduction of a carbon price.

Given the long and colourful history of attempts to develop coal-water fuels — exposed on Background Briefing on Sunday — it seems highly unlikely DICE will be able to deliver substantial reductions in the medium term. Which begs the question, why is Greg Hunt pretending that it might?

Using the emissions reduction fund to provide handouts to industry friends delivering sub-optimal abatement. It’s a perfect example of the risks inherent in the Direct Action policy.

*Paddy Manning’s “The search for the clean coal holy grail” investigation appeared on ABC Radio National’s Background Briefing program on Sunday and will be repeated at 2pm on Tuesday.