American Electric Power 2008 Corporate Sustainability Report

38 Climate Change 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 marketbased, 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: 1. the proposal’s lack of a price-based safety valve to prevent undue economic harm; 2. the recommendation that allowances transition to be fully auctioned instead of freely allocated; and 3. AEP’s belief that near- and intermediate-term emission reduction targets may be too onerous to be achieved cost-effectively. 2008 Projected Coal Consumption by Origin (AEP burns approximately 76 million tons of coal per year.) Powder River Basin & Other 43% Northern Appalachia 33% Central Appalachia 24% 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. THE ROLE OF COAL IN OUR FUTURE 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 pro- Coal fuels 68 percent of AEP's generating capacity. Much of it is delivered to our plants by barge.

Table of Contents Feed for the Digital Edition of American Electric Power 2008 Corporate Sustainability Report

American Electric Power 2008 Corporate Sustainability Report Contents Leadership, Management & Strategy A Message from Michael G. Morris A Message from Dennis E. Welch About This Report Environmental Performance Work Force Issues Public Policy Climate Change Energy Security, Reliability & Growth Stakeholder Engagement Glossary GRI Table of Contents

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