As the Senate began debate today on a sprawling bill to reduce oil consumption, top Democrats were circulating a proposal to provide $10 billion in loans for plants that make diesel fuel from coal. The proposal highlights the horse-trading involving powerful industry groups as Democratic leaders push for legislation that would require higher mileage in cars and a huge increase in the production of renewable fuels made from plants like switchgrass.
The proposal has angered environmental groups, which contend that coal-based liquids produce at least as much carbon dioxide, the primary gas associated with global warming, as petroleum-based fuels do.
The bill was drafted by Senator Jeff Bingaman, Democrat of New Mexico, who is chairman of the Senate Energy Committee and the energy bill’s lead author. Until this week, Mr. Bingaman had opposed big subsidies for coal-based fuels, saying that each new production plant would cost billions of dollars and that the economic uncertainties posed risks for taxpayers.
But in what could be an effort to fend off demands from coal-state lawmakers for even bigger subsidies, Mr. Bingaman drafted a measure that would offer up to $10 billion in direct government loans for coal-to-liquid plants.
The individual loans would be allowed to cover up to half the total cost of a new plant, and the plants would have to be capable of capturing and storing the carbon dioxide emitted during production.
Numerous companies have proposed coal-to-liquid projects, and industry supporters have said that a plant producing 50,000 barrels of fuel a day would cost at least $3 billion and probably more than $4 billion.
Supporters of the coal industry say that coal-based liquids could replace millions of gallons of gasoline a day, reducing the United States’ dependence on imported oil from the Middle East and other troubled corners of the world.
Coal-state lawmakers are pushing for a wide array of government assistance to jump start the new industry. In the House, Representative Rick Boucher, Democrat of Virginia, has drafted a bill that would insulate coal-to-liquid plants from gyrations in energy prices by providing companies with automatic loans if oil prices drop too low to make coal-based liquids profitable.
Other lawmakers have proposed letting the Air Force sign 20-year contracts to buy vast amounts of coal-based jet fuel at fixed prices. And still others have proposed including coal-based liquids in a government mandate to greatly expand production of alternative fuels.
“A group of us is working on it,” said Senator Byron L. Dorgan, Democrat of North Dakota and a strong supporter of liquefied coal fuel. But Mr. Dorgan cautioned that Mr. Bingaman’s bill was “still a work in progress” and that Democratic leaders had yet to agree on what incentives to include in the measure.
Corey Henry, a spokesman for the Coal to Liquid Coalition, an industry lobbying group led by the National Mining Association, said he was optimistic that the Senate would include some kind of support.
“You can definitely see that there’s a bipartisan effort to achieve a workable coal-to-liquid provision,” Mr. Henry said.
By EDMUND L. ANDREWS
