The Gavin power plant, a coal-burning juggernaut straddling the north bank of the Ohio River, is one of the dirtiest power plants in America.
It was owned by American Electric Power Co. until 2017, when the Ohio-based utility sold the behemoth amid a sustained drop in wholesale power prices.
Unloading Gavin had another benefit: It made AEP appear substantially greener.
The utility's sustainability reports show that AEP's carbon dioxide emissions fell abruptly by 21 million metric tons, or 23%, between 2016 and 2017. Officials bragged in investor presentations of cutting emissions 65% between 2000 and 2019.
It added up to what looked like real progress in the fight against climate change. And in 2019, AEP raised its 2030 target for emissions reductions from 60% of 2000 levels to 70%.
"We have an excellent record, and I think that's why we get seen from the ESG community, where they know what we're doing, they know what our message is, we're making continual progress," AEP CEO Nick Akins, referring to environmentally conscious investors, said in a call with financial analysts last year.
Despite the progress claimed by AEP executives, their efforts to appear greener to investors had little effect on the atmosphere.
Gavin has continued to belch CO2 into the atmosphere in the years since its sale. In fact, only six power plants in the United States emitted more CO2 between 2017 and 2019, according to an E&E News review of EPA data.
Power plant emissions are supposed to follow their owner, according to most accounting guidelines for greenhouse gases. In the Gavin example, AEP should have removed the massive coal plant's emissions from its annual CO2 tallies prior to 2017. The plant's new owners, by contrast, should have added its CO2 totals into their historic emissions tallies.
The accounting gimmick creates the illusion of an emissions reduction that exists only on paper. It also highlights a larger problem: The guidelines governing public emissions reporting are vague and voluntary, enabling companies to embellish their reductions, while making it difficult to compare one utility with another.
In AEP's case, the utility would have reported a 55% reduction in CO2 between 2000 and 2019 if it had followed general industry practices. Instead, company officials told investors that it had achieved a 65% cut in carbon emissions.
AEP isn't the only utility that inflates its emissions reductions. Three of the top five power sector emitters in the United States use accounting metrics that enhance their cuts, according to an E&E News review of EPA data and company financial filings.
Many companies, like Vistra Corp., measure their emissions reductions against years when CO2 soared, making those cuts appear slightly larger. Southern Co., another top five emitter, also counts the emissions of divested facilities up until the date of sale.
The accounting chicanery reflects the rising level of public pressure on power companies to cut CO2. So-called ESG investors, who prize performance in environmental, social and corporate governance factors alongside returns, wield increasing influence on Wall Street.
'Get in front'
In Washington, where President-elect Joe Biden and congressional Democrats are pushing to eliminate emissions from the power sector by 2035, utilities have touted their carbon reductions as evidence that they can confront climate change without heavy-handed government intervention.
"The fact that companies feel the need to do this ESG reporting is an extremely important and positive development. But that companies do this in such a haphazard manner demonstrates the need for uniform federal ESG reporting standards so we're comparing apples to apples," said Tyson Slocum, who leads the energy program at Public Citizen, a watchdog group.
"Without uniform standards, it is going to turn into an absurd public relations game where companies devise their own methodologies to make themselves look like climate champions when, in reality, that is not the case."
Industry officials say companies are working to improve reporting. An ESG template designed by the Edison Electric Institute, a trade group representing investor-owned utilities, is now in its third version.
Power companies have a good story for environmentally minded investors, said Richard McMahon, EEI's senior vice president of energy delivery and finance. Federal figures show that the industry has cut emissions 33% since CO2 levels peaked in 2017.
Those reductions have come amid a transformation on Wall Street, where wealth is shifting from baby boomers to younger, environmentally conscious generations. Institutional investors have also become more concerned about environmental performance.
EEI's template was designed to provide a concise, standardized approach to emissions accounting, highlighting the progress utilities have made and helping power companies appeal to a new generation of investors, McMahon said.
"We recognized it was important to get in front early," he said.
Utilities, for their part, note the rapid change in their generation fleets. Where coal accounted for 70% of AEP's electricity generation in 2005, it amounted to 45% last year.
Renewable energy, including hydropower, has risen from 4% to 17% of AEP's generation over that time. The utility is planning to retire 5,600 megawatts of coal over the next decade, or a little less than half its remaining coal capacity. At the same time, it has plans to invest in 8,000 MW of wind and solar capacity over the next decade.
"Our customers and investors want us to continue moving to cleaner energy," AEP spokesperson Tammy Ridout wrote in an email. "The decisions to retire generation and make investments in new renewables are based on the economics of being able to serve our customers with the lowest cost energy sources, taking into account potential future climate costs and the desire to transition to cleaner forms of energy."
'Decarbonize with integrity'
Critics note that EEI's template doesn't contain standards for key accounting metrics, like baseline years or how to treat emissions of divested plants. Those shortcomings enable companies to overstate their emissions reductions and point to the need for federal reporting standards, they say.
By inflating their emissions reductions, utilities appear closer to achieving self-determined climate goals, critics contend. AEP, for instance, has 10 years to reduce its emissions 5%, thereby meeting its 70% overall reduction goal. Southern could meet its 50% reduction target by lowering its emissions another 6% by 2030.
That enables companies to slow-walk coal retirements and add more gas in future years, all while claiming to meet their emissions targets, critics contend. About three-quarters of the coal capacity AEP has scheduled for retirement comes after 2025.
"Utilities are trying to appease investors by saying they are worthy investments, and not just problem children, but part of the solution," said David Pomerantz, executive director of the Energy and Policy Institute, a utility watchdog. "They are in some cases reporting their metrics in highly misleading ways to support that argument. If you unrig the data, if you look at the numbers they are trying to hide, some of these companies are decarbonizing too slowly."
That criticism underscores a larger point.
Some investors are concerned about climate liabilities. From that perspective, selling a fossil fuel plant can be a boon for a company. But most analysts said ESG investors want to put their money behind companies that are spurring the transition to a low-carbon energy system. Selling a dirty power plant and claiming the emissions reductions does little to satisfy those investors.
"The reason companies have set these goals is because of investor pressure, and so it's important to know who is green washing and who is trying to decarbonize with integrity," Pomerantz said.
The CO2 bean-counting has political implications, too. Early fissures have appeared between President-elect Joe Biden and industry leaders.
A growing number of utility executives have labeled unrealistic Biden's goal of decarbonizing the power sector by 2035. They say electricity costs would soar and that it would require massive technological leaps to maintain the reliability of the electric grid.
Utilities will likely try to hold off such plans by citing the emissions reductions they have already achieved, Slocum said.
"There's an aspect of the current ESG reporting regime that is more tailored to the public relations arm of the company than to decarbonizing and addressing the climate crisis," he said.
Juking the stats, CO2-style
The first decision a company has to make in calculating its emissions is setting a baseline. It's the figure that all future reductions are measured against.
But there is no standard way to do that. The closest thing to an industry standard is the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, which was designed by the World Business Council for Sustainable Development and the World Resources Institute. But it does not set a uniform base year. The same is true for the ESG reporting template developed by EEI in conjunction with the American Gas Association.
In the absence of a standard, companies pick their own baseline year. AEP uses 2000 because it's the year it acquired Central and South West Corp., a Texas-based utility.
Southern measures against 2007 because it reflected a typical year for electricity demand, coming before the 2008 recession and without a major disaster like a hurricane.
Vistra chose 2010 because it reflects the company's entire fleet. Its newest coal-fired plant, Oak Grove, came online in Texas that year.
Berkshire Hathaway Energy and Duke Energy Corp. use 2005, the year used by the Paris Agreement.
Picking a year with higher emissions inherently makes future carbon reductions look larger.
Vistra is a good example. The 105 million tons of CO2 it emitted in 2019 is 39% below 2010 levels and 34% below 2005 levels, according to EPA data examined by E&E News. Vistra touts the seemingly larger reduction of 39% in its annual sustainability report.
If Vistra picks a baseline that accentuates its reductions, the company is a model for how utilities are supposed to treat emissions from acquired and divested plants.
Vistra became the largest power-sector emitter in the United States following its 2018 acquisition of Dynegy Inc., a coal-heavy utility with a large presence in the Midwest. Vistra added the Dynegy plants' historical totals of CO2 to its past emissions tallies. But it does not count the carbon from plants that Dynegy divested itself of in previous years.
Omitting power plants
AEP and Southern do the opposite. Both companies count past emissions from divested plants but remove them from their tallies after they are sold. That makes their reductions appear bigger on paper.
Southern mentions the role divestures play with regard to emissions in investor presentations and its most recent filing with CDP, a sustainability nonprofit. In its CDP report, Southern estimated that the 2019 sale of its Gulf Power subsidiary reduced emissions from 2018 levels by about 9.5 million tons.
That makes a modest difference in the utility's overall emissions reduction figures. Southern's emissions were down 44% between 2007 and 2019 when excluding the Gulf Power plants and 48% when accounting for them, according to E&E News' review.
"Due to the potential lack of data associated with acquisitions, and in an effort to maintain accuracy, Southern Company has not recalculated the baseline upon structural changes such as divestitures and acquisitions," Schuyler Baehman, a Southern spokesperson, wrote in an email. "If Southern Company divested and/or acquired assets that result in a significant structural change (greater than a 10% of emissions), then we may reconsider adjusting the baseline."
That stance is consistent with the Greenhouse Gas Protocol's recommendation that companies recalculate their baselines to reflect significant structural changes. The protocol offers no definition of what constitutes a significant structural change.
AEP is different.
In addition to the Gavin plant, the utility's 2000 baseline includes major emitters like the Coleto Creek coal plant in Texas and a 25% stake in the Zimmer power plant in Ohio.
AEP divested those facilities in 2004 and 2017, respectively. Including those and other divested plants raises AEP's baseline by 17 million tons, or 11%, according to E&E News' review.
That is not the only way AEP enhances its emissions reductions. It also downplays its share of carbon associated with two coal plants operated by Ohio Valley Electric Corp. (OVEC). AEP maintains a 43% stake in OVEC, making it the largest of eight owners in the cooperative.
The OVEC plants are major emitters. AEP's share of CO2 from those facilities amounted to roughly 6.5 million tons in 2000 and just under 5 million tons in 2019, according to EPA data. AEP reports OVEC's emissions as part of CO2 associated with purchased power, a figure that can only be found in the appendix of its ESG report. OVEC and purchased power emissions are not included in the 65% figure the company touts in the report's introduction and in other presentations.
Asked to explain the company's approach to emissions accounting, Ridout, the AEP spokesperson, wrote, "When our investors and the public look at our climate risk and the progress we have made in reducing carbon emissions, we think it's important to show all the steps we have taken to reduce climate risk.
"Most of our emissions reductions [have] been made through investments and plant retirements, and we continue to be transparent about our emissions and the significant progress we have made to transition to cleaner forms of energy," she said.
E&E News' review of AEP sustainability reports and CDP filings found no mention of how the utility accounts for divested emissions. Ridout did not respond to questions about whether the company has publicly disclosed its methodology.
Ironically, AEP might be understating its emissions progress by declining to use standardized accounting methods.
When E&E News applied a standard methodology to the company's carbon data, it found AEP's emissions were down 52% between 2005 and 2019. That amounted to the largest decline among the country's top five utility emitters over that period.