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Assigning Value to Carbon

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There is a growing debate about the social costs and benefits of carbon and its role within the electric sector. The generation and use of electricity creates enormous social benefits and has been a key instrument in powering economic growth and enhancing the quality of life for millions of Americans.

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The generation and use of electricity creates enormous social benefits and has been a key instrument in powering economic growth and enhancing the quality of life for millions of Americans.

Domestic, abundant resources such as natural gas and coal have been the dominant primary energy sources that add value to our society through their conversion to electricity. AEP and others have made great strides over the past 100-plus years to convert these finite resources more efficiently, to the benefit of our customers and society. However, the simple fact remains that the cornerstone of this process is converting hydrocarbons into simpler molecules of water and carbon dioxide (CO2), thereby releasing energy. Thus, CO2 is not an unintended consequence of the conversion process, such as sulfur dioxide or nitrogen oxide, but rather a fundamental outcome.

Several years ago, the federal government developed a methodology that essentially assigns a monetary value to carbon dioxide emissions based on the potential effects of climate change. The value is referred to as the Social Cost of Carbon (SCC). Values for the SCC were updated in 2013 without any opportunity for public participation and were much higher than original estimates.

The government uses the SCC in its analysis of programs and activities to ensure that the effects of changes in GHG emissions as a result of regulatory programs are appropriately taken into account in the cost-benefit analysis. However, the government does not use the social benefit of carbon in its calculations. We believe that the best way to get a balanced assessment of the true value of carbon is to consider the cost and social benefits. Social benefits of fossil-based energy directly affect quality of life, from clean drinking water to heating and cooling. Energy has powered three industrial revolutions, including today’s technology revolution. Those are positive benefits of carbon that are often overlooked. We are concerned that the use of these values could help substantiate regulations beyond what might otherwise be economically prudent.

The challenge is that current regulatory cost-benefit methodologies are already deficient in capturing all macroeconomic impacts to consumers. In particular, they do not adequately consider the societal benefits of affordable, reliable energy.

Climate change is a very complex scientific field, and projecting future economic impacts of atmospheric greenhouse gas concentrations requires extensive analysis well beyond what current observations and measurements would suggest.

We would encourage the U.S. Government’s Interagency Working Group to explore alternative systems to more accurately monetize carbon benefits and/or costs and to be more transparent about their process. Until that time, we believe the SCC should not be used within the regulatory process.

Our Strategy for Growth

AEP's strategy for growth is to invest capital in our regulated companies. Our investments in transmission and distribution improve reliability for customers and operational efficiencies of the grid, and provide a pathway to market for renewable energy.

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