Hydrogen's Dirty Details

Cleaning Up: Bush's Pals, an Oligarch, and a Siberian Pollution Factory

The day after George W. Bush's 2003 State of the Union address, the president of the National Mining Association, Jack Gerard, wrote him a letter applauding Bush's plan for a pollution-free future powered by fuel cells, the battery-like devices that use hydrogen to release energy. "Coal—reliable, abundant, affordable and domestic," wrote Gerard, "will be the source for much of this hydrogen-powered fuel."

Gerard is right: The so-called hydrogen economy will be a boon for the mining industry. The clean-energy future that many environmentalists have dreamed of has been turned over to the coal industry and a notoriously dirty Siberian mining company run by Russian oligarch Vladimir Potanin. A deal personally smoothed over by Bush has given Norilsk Nickel, one of the world's worst polluters, a toehold on American soil—and a major stake in the hydrogen economy.

The new mining frenzy is emerging as yet another piece of Bush's "black hydrogen agenda," according to the Green Hydrogen Coalition, whose members include the Sierra Club, Public Citizen, and Jeremy Rifkin, a leading proponent of hydrogen fuel cells.

The coalition favors the use of wind and solar energy to power the reactions that extract hydrogen from substances like water. But to build the hydrogen economy over the next 30 years, Republicans are instead planning to burn more fossil fuels and dig for coal and gas on public and private lands. The Green Hydrogen Coalition noted that the GOP-written Senate energy bill called for subsidizing the nuke and fossil fuel industries to the tune of $8 billion, twice the amount set aside for renewable energy sources.

Hard-rock mineral miners will also have a big role in Bush's version of the hydrogen economy. The most promising hydrogen fuel cell designs depend on expensive platinum group metals, or PGMs, which catalyze hydrogen with oxygen to release energy while resisting corrosion. Most PGMs, particularly platinum and palladium, are produced as by-products of nickel and copper hard-rock mining and smelting, practices that scar landscapes and spew sulfur dioxide and heavy metals into the air and surrounding waterways.

Only two mines in the world produce PGMs as their primary product. One is the Stillwater Mining Co. in Nye, Montana, where miners are digging deeper each year to extract palladium and platinum. The Stillwater mine actually enjoys a good reputation among environmentalists. It's underground, and its waste rock and tailings contain little of the toxins associated with the hard-rock mining of other minerals. "Stillwater operates so cleanly you can damn near eat off the floor," says Jim Kuipers, a mining engineer and consultant who has worked with the Mineral Policy Center, an environmental group that was not part of the agreement.

But earlier this year, Stillwater, the only U.S. producer of palladium and platinum, was taken over by Norilsk Nickel, the world's biggest producer of PGMs. Bush and Russian president Vladimir Putin discussed the deal in a meeting in 2002, and Norilsk hired Baker Botts, a law firm run by former secretary of state and Bush family friend James Baker, to ensure regulatory approval.

As part of the deal, Norilsk got to name five new directors to Stillwater's board. But they're not Russians; they're heavy-hitting Americans, including a Bush pal or two: Craig Fuller, who served as assistant for cabinet affairs to President Ronald Reagan and chief of staff to Vice President George H.W. Bush; Steve Lucas, a GOP strategist who works as a lobbyist and attorney with one of California's most powerful law firms; former Michigan senator Don Riegle; veteran mining executive Jack Thompson; and Todd Schafer, a Moscow-based attorney for Hogan & Hartson, one of the biggest lobbying firms in D.C. (Schafer was a key lawyer in protecting Potanin's control of Uneximbank, the cornerstone of the oligarch's holdings.)

Norilsk, which was taken private by the oligarch in a controversial move after the Soviet empire collapsed, produces palladium as a by-product of its mining operations in Norilsk, an industrial nightmare city in northern Siberia. The company's smelts have been releasing 2 million tons of sulfur dioxide each year for over 50 years, damaging or destroying 2 million acres of forest. By this measure, Norilsk is the worst polluter on the planet. Satellite images from a NASA study of Norilsk show 100-mile-long plumes of sulfur dioxide and other noxious exhaust over the city.

With Stillwater, Norilsk will have even more power to set prices in the marketplace. Like oil cartels, PGM producers adjust their output to keep prices up. But prices vary wildly with changes in the demand for catalytic converters, jewelry, and other products that use the metals.

Norilsk is banking on the hydrogen economy to lift the value of palladium, which was trading at the start of December at $190 per ounce, well below its one-year high of about $270. The company announced it will spend up to $40 million annually researching the viability of fuel cells based on palladium.

Scientists working for fuel cell manufacturers and Detroit automakers, meanwhile, are desperately trying to reduce the amounts of PGMs needed for use as fuel cell catalysts. Even so, the Department of Energy's 2003 Annual Progress Report predicts that "the platinum industry will have to increase its rate of new production capacity to satisfy increased demand" for hydrogen fuel cells.

This has hundreds of prospectors sharpening their pickaxes and invoking archaic mineral laws to explore millions of acres of public and private lands in the American West. Many of them are leasing mineral rights from the U.S. Department of the Interior's Bureau of Land Management. Ranchers, Native American tribes, and other people often own the surface. The federal government often controls the subsurface mineral rights. It's BLM's job to balance the rights of both sides.

But BLM, which manages one-eighth of the land in the United States and 300 million acres of subsurface mineral rights, is being too lenient with mining companies, say environmentalists. BLM has been especially eager to help energy companies exploit coal deposits on ranches in Montana and Wyoming that are not practical for mining but can be pumped for coal-bed methane, natural gas that is trapped underground with the coal.

BLM freely admits that it takes its orders from the White House, which is instructing the bureau to favor fossil fuel developers. "Clearly, we have the president's initiative, and we are charged with carrying out that initiative," says BLM spokeswoman Celia Boddington.

Mineral miners, meanwhile, are taking advantage of laws dating back to the 19th-century gold rush, but some of them insist that they are doing more than simply joining a 21st-century platinum rush.

"The whole reason I got into this is to fulfill this fantasy of a new clean source of energy," says Robert Angrisano, a former Microsoft executive and president of Nevada Star Resources, a platinum exploration company with mineral rights to drill for platinum in Alaska's Denali region. "And to do it, we need more research into fuel cells, and more platinum."

Nevada Star is one of a slew of so-called juniors, often underfunded operations run by rich individuals with little actual mining experience. Their websites often feature pictures of engineers poring over a map in a wilderness area, with a helicopter perched in the background. The juniors' chances of finding significant amounts of PGMs are slim, but the rewards would be great in a hydrogen economy. And since many of these exploration companies trade as penny stocks on public exchanges, investors are absorbing most of the risk.

Environmentalists reject miners' claims that they are motivated by a desire to build a better world with less pollution. "Miners are like lemmings," says Mara Bacsujlaky, assistant director and mining coordinator at the North Alaska Environmental Center. "They're not exploring because they care about fuel cells, but because platinum happens to be high."

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