By Timothy Gardner

ST. LOUIS, April 25 (Reuters) - Transforming coal into transport fuels and natural gas can play a big role in cutting greenhouse gas emissions in the United States and eventually in rapidly developing countries like China, the chief executive officer of Arch Coal Inc. <ACI.N> said in an interview.

"You're not serious about global carbon stabilization unless you're serious about increasing investment in coal technology," Steven Leer, chief executive of Arch, the second largest U.S. coal miner, said Wednesday in an interview at a conference on coal's future.

Coal drove the industrial revolution and fuels half of U.S. electricity today. It faces challenges in the future as pressure grows for the United States to cut greenhouse emissions because it emits far more CO2, the main heat-trapping gas, than oil or natural gas.

The United States boasts 250 years worth of coal, the world's top supply, and miners hope a new coal age could cut the country's dependence on oil and natural gas imports if CO2-cutting technologies are developed.

Coal miners say coal-to-liquids, a technique used in South Africa over the last 50 years that turns the fuel into a diesel, and coal-to-gas can be paired with carbon capture and sequestration to reduce emissions .

The latter technique, not yet used at commercial-scale power plants, would use heat and pressure to siphon CO2 from coal. The CO2 would then be pumped into aging oil and natural gas fields to push out remaining fuel, or into deep saline formations, both for long-term storage that keeps it from reaching the atmosphere.

U.S. President George W. Bush has called for 35 billion gallons a year of ethanol and alternative fuels by 2017, some of which could come from coal. The U.S. military, the world's top single fuel buyer, hopes coal-to-liquids can produce a domestic supply of a single fuel grade running everything from helicopters to Hummer trucks.

Many environmentalists oppose coal-to-liquids, saying the fuel it produces has higher CO2 emissions than the gasoline it replaces. A 2003 Princeton study found that even if its greenhouse gases were buried, the coal fuel would still emit about 8 percent more CO2 than gasoline. A power expert at Environmental Defense, however, said the jury is still out on whether coal-to-liquids can be made clean.

Arch's Leer said the coal transport fuel can be made cleaner over time and that carmakers may have to help cut emissions by producing more efficient vehicles. He said coal-to-gas would cut emissions because the resulting natural gas can be burned to provide power for plug-in hybrid cars that would be far cleaner than cars that run on diesel or gasoline.

A recent Massachusetts Institute of Technology study found carbon capture and sequestration equipment could add 20 percent to power bills. Leer said coal's supply security and cheapness compared to oil and gas gives it plenty of headroom to compete.

Arch has agreed to supply a small $2 billion coal-to-liquids plant planned in Wyoming with fuel and has a 25 percent interest in DKRW Advanced Fuels LLC, the parent company developing it. Leer said the United States may have to spend $2 billion a year in research for 10 years to perfect and expand the technologies, but added that was a small price compared to the hundreds of billions the country spends on fuel imports.

He said the technologies could eventually help cut CO2 emissions in developing countries, where he said the focus now is on spreading electricity transmission to reduce poverty and cutting emissions of pollutants like smog components and particulates that have been slashed in the United States.

"If we make investments to develop coal technologies and then give them, sell them, or make them part of the foreign policy to China, India and Russia, I think we can help stabilize global CO2," he said.

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