The world is poised to make the most dramatic change in energy production since
the Industrial Revolution. Our collective response to climate change is creating
a transformation that will lead to profound consequences for all sectors of the
global economy. As one of the largest consumers of coal in the Western Hemisphere,
AEP recognizes the urgent need to balance the growing demand for electricity with
the imperative to protect the environment for future generations.
The scientific community, led largely by the
Intergovernmental Panel on Climate Change, has provided scientific evidence
that human activity has contributed to global warming. AEP is helping to lead the
discussion nationally and internationally to find a reasonable, achievable approach
and enact federal energy policy that is realistic in time frame and does not seriously
harm the U.S. economy. We also are developing advanced coal technologies so that
coal can continue to be the important energy resource it is today. We support the
adoption of an economywide, cap-and-trade greenhouse gas (GHG) reduction program
that allows us to provide reliable, reasonably priced electricity to our customers
and that fosters the international participation that is necessary to make meaningful
progress.
At AEP, we believe that cap-and-trade legislation should include:
- A cap that applies to all sectors of the economy and covers all GHGs.
- A framework that maximizes flexibility and minimizes cost.
- Phase-in of reduction requirements that matches available
technology. - Unrestricted use of real and verifiable domestic and international emissions offsets,
such as methane capture and destruction from landfills and livestock waste and international
deforestation protection.
- Allowance allocations to electric generators and other sources based on historical
emissions. This might include, if absolutely necessary, a small number of allowances
(i.e., less than 5 percent) to be auctioned or set aside for public purposes.
- Incentives for early voluntary actions or investments made to reduce emissions.
- Long-term public and private funding to develop commercially viable technology solutions,
such as carbon capture and storage.
- Elimination of legal and regulatory barriers to the use of lowor no-carbon technologies
or processes (e.g., carbon capture, nuclear, wind).
- Regulatory pre-approval of utility cost recovery for effective energy efficiency
and demand-side management (DSM) programs.
- A price ceiling (safety valve) on CO2 allowances to limit the economic burden on
emitters and on the economy as a whole. Companies with compliance obligations can
buy emission allowances from the federal government at the safety valve price.
- An appropriate trade measure to equalize the conditions of global trade should other
countries fail to reduce GHGs.
Cap-and-trade is widely considered the most effective system to reduce GHG emissions,
although debate continues about whether permits should be allocated or sold at auction.
We favor allowances, based on our experience with the Environmental Protection Agency's Acid Rain Program and
the Chicago Climate Exchange
(CCX), both of which allocate allowances based on historical emissions with little
or no auction. The EPA program, with only a 3 percent auction of allowances, has
been hailed as a major success because of the affordability it provides in reducing
acid rain-causing emissions.
A large auction of allowances would require emitters to buy allowances to cover
all of their emissions. This would place unfair costs on customers of regulated
utilities, especially those whose electricity comes from coal.
Our stakeholders are divided on having a price ceiling, or "safety valve,"
in the legislation. The Environmental Defense Fund, for example, strongly opposes
a safety valve and has urged us to abandon our support for that provision. Our customers,
however, could be severely affected by escalating energy rates if carbon prices
were entirely market-based, and would pay more for their energy, through no fault
of their own, than customers of utilities that derive less of their power from coal.
We believe a safety valve, which sets a ceiling on the cost of CO2 allowances, would
protect the economy if carbon prices skyrocket. Some of our stakeholders are frustrated
with this position. We have agreed to continue to discuss this issue to find common
ground.
Some stakeholders have asked why we have not joined the United States Climate Action
Partnership (USCAP), which provides general recommendations for establishing a mandatory
domestic GHG cap-and-trade program that would reduce CO2 equivalent emissions by
60 percent to 80 percent by 2050. AEP's decision not to join USCAP is based on several
factors, including:
- The proposal's lack of a price-based safety valve to prevent undue economic harm
- The recommendation that allowances transition to be fully auctioned instead of freely
allocated
- AEP's belief that near and intermediate-term emission reduction targets may be too
onerous to be achieved cost-effectively
AEP burns approximately 76 million tons of coal per year.
We support another GHG cap-and-trade proposal – Senate Bill 1966, the Low
Carbon Economy Act of 2007, introduced by U.S. Sens. Jeff Bingaman (D – N.M.)
and Arlen Specter (R – Pa.) that provides the best balance of current legislation
in addressing these key issues.
For all its challenges, coal remains an important energy resource for the future.
It is an abundant, domestic and relatively inexpensive source of energy. Fully one-half
of America's daily electricity supply comes from coal and no other fuel is capable
of meeting that need on a cost-effective basis. Twenty-five of AEP's 61 power plants
burn coal to generate electricity, accounting for 68 percent of our total generating
capacity.
In recent years, however, coal-fired power plants have become increasingly difficult
to site and build. Our proposed Oklahoma plant was turned down, one of 59 U.S. plants
that were cancelled, delayed, or abandoned in 2007 because of objections to coal.
Such setbacks make it increasingly likely that demand for electricity will outstrip
supply in the next decade. Given the aging infrastructure we have today, these delays
may well cause higher prices and supply concerns – without creating any major
environmental benefits.
We believe that climate change will not be solved through a single solution, but
rather through multiple options and public policies to support them. Advanced coal
technologies such as Integrated Gasification Combined Cycle (IGCC), ultra-supercritical
pulverized coal, renewable energy sources, energy efficiency and DSM programs for
consumers, new nuclear power plants, and new transmission and distribution infrastructure
are all needed to make our electricity system more efficient and must all be part
of the solution.
