Obviously coal is only a short term energy solution, and releases terrible quantities of carbon dioxide, sulfur, and mercury. The simple solution is a carbon tax, sulfur tax, and mercury tax. All those pollutants could be reclaimed at the source (most of them for a modest cost) if there was an economic incentive to do so. Such taxes should be high enough to internalize the externalities.
The obvious and immediate benefit of using coal to provide the energy for the distillation step of ethanol purification is that coal is not made from oil, and has relatively stable low prices and high domestic production. Using coal to provide energy for transportation provides a badly needed alternative to oil. Natural gas prices are also volatile and are far more intertwined with oil prices due to their position in the home heating market. Less than 16% of the energy used in producing ethanol comes from oil, so it is a very effective method at diversifying the transportation energy portfolio. Ethanol could be made entirely using renewable energy, but coal prices are artificially low due to subsidies and lack of internalization of the cost of negative externalities.
Regarding use of ethanol in transport, the higher octane rating of ethanol allows for the use of higher compression rations, and greater overall energy efficiency. MIT has designed an engine with 30% greater fuel efficiency by taking advantage of ethanol. Laying the groundwork for ethanol distribution and production now will allow far superior fuel efficiency in 2010 when vehicles based on the MIT design finally reach the market. The reduced mileage in current vehicles is simply because they are optimized for gasoline, not ethanol.
http://web.mit.edu/newsoffice/2006/engine.html
There was a recent discover article about clean coal, and it wouldn't be that hard to make coal burning much less harmful. If this was done, then the real problem would be that it's a nonrenewable resource, and we should be eliminating dependencies on nonrenewable resources.
http://www.discover.com/issues/dec-06/features/clean-coal-technology/
So what measures do you think would be best to support renewable energy? A net carbon tax is the most obvious, with allowances for carbon trading so that a company could create forests to offset emissions. A graduated permanent increase in the carbon tax over fifty years would send the proper signal to investors to side with renewables, while avoiding sudden price shocks.
Edit: Corrected in response to cyclowizard's coherent, factually based, well reasoned and explained post below. Even a very large cost for removing mercury could potentially be dwarfed by negative health effects and decreased product value to the fishing industry of coal induced mercury contamination. Mercury levels of the pregnant mother have been shown to be negatively correlated with the child's IQ, so to some extent coal may be blamed for the dumbing down of _____. The economic impact of this effect defies accurate estimation. IMHO the whole coal industry should truly be taxed out of existence, but gradually (30-100 years) so that alternatives can be made economically.
The problem of measuring low concentration contaminants is a pervasive one in environmental regulation, and the methods of dealing with this problem have thus far been often flawed. One method to be avoided is assuming a certain level above the measurement threshold if none is detected, as this discourages further improvements below the base measurement threshold.
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