AEP Sustainability - Carbon & Climate

A clean energy future

The transition to a clean energy future is well underway, and AEP is making good progress. From diversifying our resource portfolio, deploying technologies to mitigate risk, modernizing the grid and working with our industry peers to achieve a low- to no-carbon future, we are at the forefront of this transformation. Climate change remains a significant risk and opportunity for which we are preparing to ensure we can deliver the clean, safe, reliable and secure electricity our customers expect from us, now and in the future.

We continue to monitor a variety of increasingly significant issues, including climate change legislation, which might receive consideration in the U.S. House and Senate after the 2020 election.

We are engaging many different stakeholders to understand their concerns and address their questions about our plans. In 2020, we are conducting a deeper analysis of how climate-related risks and opportunities may play out under different scenarios, the potential impact they could have on our company, and the new business opportunities they may provide. We expect to publish our findings by the end of the year.

In 2019, we revised our carbon emission reduction goals because we had already achieved significant emission reductions ahead of schedule. Our new 2030 goal is to reduce CO2 emissions by 70% from a 2000 baseline. Through 2019, we achieved a 65% reduction in carbon emissions from our 2000 baseline. Our progress has been quicker than expected primarily due to lower utilization of coal generation accelerated by falling energy prices caused by low natural gas prices and the growth of subsidized renewables with zero fuel cost. We expect our 2050 goal to exceed 80% reduction and achieve larger reductions – with an aspiration of zero emissions. We committed to our stakeholders that we would review these goals annually as public policies, regulations, resource plans and advancing technologies change. Our new goals reflect this, and we are confident in our ability to achieve them.

Often, we are asked about our schedule for phasing out all coal units. We have been very transparent about planned retirements and sales of our coal units once they are confirmed. We believe it would be irresponsible and potentially harmful to our customers, employees, communities and regulatory commissions to follow any other path. These actions must occur in concert with our regulators and in the best interests of our customers. As we go through this process, our intent is to work collaboratively with those affected by these decisions.

Since 2011, AEP has retired more than 8,600 MW of coal-fueled generation; by the end of 2020, an additional 1,111 MW will be retired. Within the next 10 years, we plan to retire an additional 2,631 MW when we retire the Dolet Hills Station in Louisiana, Northeastern Unit 3 in Oklahoma, Rockport Unit 1 in Indiana, and the Cardinal Plant in Ohio. At the same time, we are continuing to grow our renewable portfolio. Our integrated resource plans suggest that this generation will include approximately 8,000 MW of wind and solar and 1,600 MW of new natural gas in our regulated utilities by 2030. These forecasted resource additions are ultimately subject to regulatory approval. Concurrent with this, we continue to grow our competitive renewable portfolio across the country.

AEP governs climate change risk through our Enterprise Risk & Resilience process. In 2019, we added climate change risk to the Material Risk Summary Watch List. Previously, we monitored climate change risks as part of our overall environmental risks.

We provide updates to management several times per year. AEP’s Board of Directors also monitors climate risks and reviews potential opportunities as part of its oversight role. Discussions about carbon and climate risks and opportunities occur during Board meetings, strategic planning, and scenario planning and analysis sessions.

We monitor many types of climate-related risks. These range from the potential financial impact of earlier retirements of legacy fossil fuel units to the possibility of future regulation that may put a price on carbon. To mitigate these risks, we are optimizing the use of our remaining coal units and continuously evaluating their remaining useful lives. This process informs the decisions we make about how we offer our units for service, how we invest additional capital to keep them operational or whether we choose to retire them.

Read more about AEP’s climate risk strategy in our 2018 clean energy report.

One misconception about AEP’s business is that we own and operate a natural gas distribution system similar to some of our peers. This comes up in the context of greenhouse gas emissions from natural gas, most notably fugitive methane emissions. AEP does not own or operate natural gas distribution, although we do use natural gas to generate electricity. The direct fugitive emissions from this process are minimal for AEP. However, the electric and gas industries realize that methane emissions are an important concern and have teamed up to include natural gas methane emissions in the annual EEI ESG/Sustainability Report. Participating companies with electric and gas operations provide data for both.

While there are many uncertainties about the future and climate change, the fact that technology will play a vital role is indisputable. Predicting which technologies will emerge as leaders is much more difficult. AEP is proactively seeking new technologies that will enhance service to customers, improve efficiency and help us accelerate the transition to a clean energy future. We are actively looking at battery storage technology as an enabler of future efficiencies for the grid, including increased use of intermittent renewable resources. We are also monitoring more advanced technologies, such as carbon capture and sequestration, hydrogen fuel cells and small modular nuclear reactors. These longer-term technology developments could have promise for a carbon-free future. Our efforts to increase adoption of electric transportation also provide substantial environmental and economic benefits. Learn more about these activities in the Electric Transportation section of this report.

In addition, AEP is a founding member of the Electric Power Research Institute’s (EPRI) Low Carbon Resource Initiative. This five-year research and development project will design pathways for the energy sector to advance low-carbon technologies for large-scale deployment. The goal is to enable a risk-informed understanding of the options and technologies we can use to facilitate significant economy-wide decarbonization. The partnership between utilities, EPRI and the Gas Technology Institute will also explore global partnerships and demonstrations to accelerate the most promising options.

In 2019, AEP received an EPRI Technology Transfer Award in recognition of our work on the Integrating Technical Analyses of Climate-Related Science into Company Climate Risk Assessment, Planning, Greenhouse Gas Goal Setting and Outreach project. This project provides a technical foundation to inform company decision-making and stakeholder discussions regarding climate risk assessment and greenhouse gas emissions goal setting.

Learn more about AEP’s investment in and commitment to innovation and technology.

The concept of Just Transition posits that climate change is not only an environmental disruption; it is a social and economic disruption that affects those who are most vulnerable. It suggests that when a generation unit is retired in a community, where it is often the largest taxpayer and employer, the decision should be accompanied by a plan to help the community rebuild the social systems lost by the plant retirement. When AEP announces plans to retire generating units, we work with our employees to help them find new jobs within AEP or provide outplacement services to help them find new jobs if they cannot relocate. Our first concern is our people, and we are aware that plant closure decisions are life changing for employees.

In addition, AEP has a long history of pursuing and attracting economic development to our communities. This became more urgent when we started retiring coal plants during the past decade. Our economic development teams provide training and resources to local officials, giving them the tools to independently grow and diversify their communities. We also invest in local training and education programs that help people develop new skills needed in today’s workforce.

One of AEP’s most significant efforts is Appalachian Sky, an initiative to attract the aviation and aerospace industry to central Appalachia. Since 2017, this program has been helping revitalize some of the communities hardest hit by changes in the coal industry. A comprehensive workforce analysis found that coal industry workers have the skills that aerospace and advanced manufacturing companies need. Through this effort, several counties in Kentucky and West Virginia are certified as AEROready, meaning they are excellent locations for these types of businesses. AEP is making targeted efforts to help revitalize these states and diversify their economies to attract new industry and jobs, and to empower local leaders to take charge of rebuilding their communities.

In addition to economic development, AEP has a strong commitment to meeting basic human needs, such as hunger and housing, access to broadband, and education. We address this through philanthropic giving and volunteerism. AEP’s responsibility is to help build sustainable, vibrant communities and help them transition to a clean energy economy. When they succeed, we succeed.