"The Kansas legislature is on the verge of passing a law that would clear the way for two new coal plants just four months after a state agency took the unprecedented step of blocking their construction because of concern about greenhouse-gas emissions.

The struggle over the $3.6 billion project, proposed for a remote town in western Kansas, has become a symbol of the uncertainty over coal's future, caught between rising fears about climate change and powerful coal and utility interests.

The Kansas showdown comes as big banks are growing more reluctant to finance new coal-fired electric plants because they expect Congress and the next president to impose steep costs on carbon dioxide emitters.

Earlier this month, Citigroup, J.P. Morgan Chase and Morgan Stanley issued a set of "carbon principles" that would establish tougher scrutiny for new coal plants. "Due to evolving climate policy, investing in CO2-emitting fossil fuel generation entails uncertain financial, regulatory and environmental liability risks," the three said in a statement. Last week, Bank of America said it would start to factor in a cost for carbon dioxide emissions when it considers financing for new coal plants, using a forecast of $20 to $40 for every ton of CO2.

Kevin Parker, head of Deutsche Bank's asset management division and a member of the bank's group executive committee, said the new principles were "a seminal event" whose "implications are enormous." Pointing out that coal and oil producers have not had to fully pay for environmental costs, he said that "hydrocarbon fuels have gotten a free ride . . . for 60, 70, 80 years, and it's all going to come to an end."

The Kansas dispute also comes as the Environmental Protection Agency continues to mull its response to a Supreme Court decision in April declaring carbon dioxide to be a pollutant subject to regulation under the Clean Air Act. Kansas regulators cited the Supreme Court case in rejecting an air permit for the new coal plants.

Yet the nation's biggest coal-mining company, Peabody Energy, aided by utilities and some labor unions, is making a stand in Kansas. The company has prodded Republican leaders in the state legislature to craft a bill that would strip the state's Department of Health and Environment of the power to deny air permits for projects that meet federal standards. The bill would also order the agency to reconsider the rejected coal-plant application.

In the past week, the state Senate and House passed separate versions of the bill by huge majorities, though the House margin fell short of what would be needed to override the veto promised by Gov. Kathleen Sebelius (D).

Sebelius, a rising star who delivered the Democrats' televised response to President Bush's State of the Union address, has offered a compromise that would allow one plant to go forward in exchange for renewable-energy projects, energy-efficiency measures and the use of more expensive technology capable of capturing CO2emissions. But her overture was rejected by the utilities.

Steve Miller, a spokesman for Sunflower Electric Power, the main utility behind the project, said Sebelius had asked for carbon capture technology that "is not viable at this time." He added that Sunflower, a rural cooperative that already has a small coal-fired plant at the same site, was insisting on building both new plants because of economies of scale. "We've got to get two plants or the deal doesn't work for us," Miller said.

Both sides are campaigning hard. Sunflower has offered to give $2.5 million to Kansas State University over 10 years -- but only if the legislation is adopted. The utility is running TV ads about clean power without mentioning coal.

Opinion polls show that a majority of Kansans oppose the plants.

Meanwhile, Rep. Henry A. Waxman (D-Calif.), has challenged Sunflower Electric, which receives federal loan support. He said its plans could put taxpayers at risk and undermine future federal climate policy.

Although half of the nation's electricity comes from coal-fired plants, environmental groups and many lawmakers want to stop the construction of new coal plants. They say utilities should rely on energy-efficiency measures to keep demand from outstripping generation capacity while research is done on how to capture and store carbon dioxide emissions.

All three remaining major presidential candidates -- Sens. John McCain (R-Ariz.), Barack Obama (D-Ill.) and Hillary Rodham Clinton (D-N.Y.) -- favor climate-change legislation. But whether Congress will tax carbon or choose among various cap-and-trade proposals is uncertain.

"Coal is facing a tremendous backlash regardless of where it rears its head," said Richard W. Cortright, managing director for utilities, power and project finance at Standard & Poor's. "The big mystery is . . . how much it's going to cost. Until we have an idea of how much carbon is going to cost, it's going to be very, very hard for anyone to move ahead with coal."

Shareholder-owned utilities canceled 3,702 megawatts of new generation projects in the third quarter of 2007, 82 percent of them coal-fired, according to the Edison Electric Institute. Although power plants' construction plans are frequently shelved, it was an unusually high amount of coal-fired project cancellations.

"The utility world has been watching this and waiting. In the meantime, we need power," said David Khani, a coal analyst at Friedman, Billings, Ramsey Group. He predicted that 14,000 to 17,000 megawatts of coal plants will be built by 2012; those plants are mostly under construction already, he said. But for anything after 2012, he said, "No investor nor Wall Street will expect them to get built until you get clarity on carbon."

But carbon-capture technology is at least a decade away, and the coal industry says new plants are needed sooner to meet rising demand and replace aging, less-efficient plants. According to a paper by Vinod Khosla, a venture capitalist, 90 percent of U.S. coal plants are more than 20 years old.

A slowdown in coal-plant construction could lead to a surge in natural gas use. "We will rely very heavily on natural gas in the United States for the next 10 years, frankly more than we probably should, and that will have an upward pressure on electricity prices," Joseph Kelliher, chairman of the Federal Energy Regulatory Commission, said at a Cambridge Energy Research Associates conference last week.

That in turn could drive up gas prices and strain the U.S. infrastructure for handling imports of liquefied natural gas.

Ralph Izzo, chief executive of PSEG, New Jersey's biggest utility, said his company is building new natural gas plants because nuclear plants are so expensive and coal plants carry unknown costs because of carbon dioxide emissions. Because New Jersey lacks structures suitable for storing carbon dioxide -- old oil wells or saline aquifers -- PSEG would need a new pipeline to carry the greenhouse gas to another part of the country.

"People kid themselves when they say, 'Never again coal,' " Izzo said. But he added that uncertainty about carbon costs as well as electricity prices has "paralyzed investment" in coal.

In Kansas, Sebelius has stood her ground, saying all the coal plants blocked in other states "would be knocking at our door" if the legislature prevails in allowing the disputed project to proceed. While acknowledging economic challenges, she said, "Our operating principles include a growing concern about carbon and its impact on the environment of our state and the health of our citizens."" (Steven Mufson, The Washington Post, February 23, 2008)