Carbon & Climate
In 2015, a number of global policy developments brought climate change and the role of carbon to the forefront of public discourse. From the Clean Power Plan to the United Nations-sponsored global climate talks and subsequent multi-nation agreement in Paris, the issue of carbon and climate intensified political and civil society scrutiny of carbon-intensive industries. Among them – the electric power sector.
We have had many discussions with investors, environmental groups and other stakeholders about this issue and AEP’s plan to reduce carbon emissions. The EPA has the authority to regulate carbon. Regardless of the outcome of legal challenges to the Clean Power Plan, there will be carbon regulations in the future.
We have proactively addressed carbon emissions through voluntary actions as a member of the former Chicago Climate Exchange, and through our resource planning and investment processes. AEP is already less carbon-intensive than a decade ago. As we retire additional coal units and increase our use of renewables and other clean energy resources, our carbon footprint will continue to shrink. Our integrated resource plans reflect this diversification and incorporate a price for carbon, starting in 2022, as a proxy for future carbon regulations.
With respect to mandated climate action, we strongly believe that any carbon policy or regulation must be rational in terms of timing, scope and reduction targets. Additionally, any climate action framework should be built on a rational approach and take into account the regional differences in the role of carbon within our economy to ensure that there is not undue economic harm.
Clean Power Plan
The U.S. EPA finalized the Clean Power Plan (CPP) in October 2015, using an existing section of the Clean Air Act. The CPP would require states to develop state-level compliance plans. AEP began discussions with our states, urging them to develop state implementation plans, rather than be forced to comply with a federal implementation plan that would not account for each state’s unique energy and economic needs.
The final rule raised legal concerns and was subsequently challenged in the D.C. Circuit Court by a number of stakeholders, including the Utility Air Regulatory Group, of which AEP is a member.
In February 2016, the rule was subject to a stay order from the U.S. Supreme Court to allow for the appropriate legal review of the rule. We continue to advocate that any plan to reduce greenhouse gas emissions be accompanied by a thorough assessment of the impact on grid reliability, allow adequate time for implementation, respect the authority of states and other federal agencies, and preserve a balanced, diverse mix of energy resources for electricity generation.
The Supreme Court stay order doesn’t change AEP’s focus on generating and delivering electricity in ways that meet the needs and expectations of our customers. That includes diversifying our resource mix and investing in renewable generation and other innovations that increase efficiency and reduce emissions.
While the courts conduct a legal review of the CPP, AEP will continue its long-term commitment to serving our customers in cost effective and environmentally responsible ways.
AEP’s carbon dioxide emissions (CO2) have been reduced 39 percent from 2000 levels, and we will continue to reduce carbon dioxide emissions as we transition to more natural gas and renewable resources in the future. Our current resource plans have been developed to insure we are factoring in future carbon regulations, but they are not CPP compliance plans, because we cannot develop such plans until after the states take action in response to the final rule.
AEP’s CO2 emissions significantly decreased between 2014 and 2015, largely due to low natural gas prices, slowing load growth and coal unit retirements. AEP’s CO2 emissions were approximately 123 million metric tons in 2014; they were approximately 102 million metric tons in 2015. This represents a 16.5 percent decrease compared with 2014 and an approximate 39 percent reduction compared with our 2000 CO2 emissions of about 167 million metric tons.
Our resource plans do include more renewables and natural gas-fueled generation based on the current prices for those sources of generation in the market place, irrespective of the CPP. The extension of the federal investment tax credits for renewables, and our expectation that price declines for renewable technologies will continue, makes economic sense for our customers and lowers our carbon profile to include these resources.
AEP also reports annually to the Carbon Disclosure Project. This information is shared with investor groups, shareholders, government agencies, and other public organizations. These responses provide a valuable insight into how the company addresses and manages what many consider to be important business risks.