By Danielle Sugarman
Fellow
In a major setback in the effort to limit carbon dioxide emissions that contribute to global warming, on July 14th, American Electric Power Company (AEP)[1] announced that it would be putting on hold its plans to build a full scale carbon capture plant at Mountaineer, a 31 year-old coal-fired power plant in West Virginia. Beginning in late 2009, AEP began operating the first fully-integrated carbon capture and storage pilot project at an existing coal-burning power plant. The technology, known as carbon capture and sequestration (CCS), is a process whereby carbon dioxide is captured from the emissions of fossil fuel power plants and then stored in underground rock formations. While the technology is still in its relative infancy, CCS is looked to by power companies and lawmakers as the fastest and most economically viable solution to allow the continued use of cheap and abundant coal while also cutting emissions to the levels that most scientists say are needed to stabilize the climate.
AEP had already spent about $100 million on its project and had begun using a chilled ammonia process to capture 90 percent of the emissions from 20 megawatts of the 1,300-megawatt Mountaineer plant. Backed by $334 million in Department of Energy (DOE) funds, the company was planning to expand the test project to roughly 230 megawatts, pumping the compressed gas into rock formations about a mile and a half below the ground. The program was expected to begin commercial operation in 2015.
AEP now argues that federal inaction on climate change has diminished the financial incentive to move forward with the program. Company officials decided to drop the $668 million project because they did not believe state regulators would allow the company to recover its costs by passing them on to customers through raised utility rates. The issue here turns principally on the manner in which state public utility commissions define the utility expenditures that are and are not eligible to be passed along to different parties. In most of the United States, state public utilities commissions decide whether costs incurred by utilities can be passed along to ratepayers or whether they will be borne by investors. Public utility commissions have the power to prevent a utility from passing on to ratepayers the costs of material and services by disallowing expenditures that the commission finds unreasonable. Since CCS devices are not legally required, in the past, public utility commissions have held that the associated costs are not “reasonable and prudent” and, thus, could not be passed on to ratepayers.[2]
Therefore, without the ability to recover their costs, AEP saw no justifiable business or regulatory reason to move forward with the project. AEP Chairman and Chief Executive Michael Morris explained that while companies will need carbon capture technology to comply with future climate regulations, without federal requirements in place that require companies to reduce GHG emissions and encourage states to provide reimbursements, the companies cannot recover their costs. Despite the fact that the federal Department of Energy had pledged to cover half of the cost of the project, AEP said it was unwilling to spend the remainder “until such time that the economic and policy conditions create a viable path forward.”
While other plants are being equipped with carbon capture technology, few projects are as far along or expansive as AEP’s project. AEP’s decision to abandon the project is seen by many as indicative of the larger failure of the federal government to take action on climate change. It is also a major setback inAmerica’s effort to not only learn how best to capture and sequester carbon emissions, but to support technological innovation in the environmental sector without losing those investments to other countries such as China.
