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April 24, 2009

Only 61% of Utilities Forecast GHG Emissions

Electric utilities need to change their operations to reduce dependence on fossil fuels and to cut carbon emissions, according to a new report.

Sponsored by the California State Teachers’ Retirement System (CalSTRS) and conducted by the Carbon Disclosure Project (CDP), the Electric Utilities Report 2009 examines how electric utilities around the globe currently measure and manage carbon dioxide emissions, and compares the level of disclosure and quality of planning among individual utilities for reducing carbon dioxide emissions. It also raises the question of how much electric utilities will need to pay for their ongoing carbon emissions and analyzes current levels of risk disclosure to investors.

The report analyzes responses from 110 of 249 of the world’s largest publicly held electric utilities. Key findings indicate that only 16 percent of utilities are setting and disclosing absolute targets for reducing greenhouse gas emissions. Less than half disclosed capacity and energy production figures by fuel type (e.g. coal, gas), which is a critical factor for investors in making decisions, according to the report.

The Environmental Integrity Project points to the U.S. Department of Energy data that suggests power-related carbon emissions will jump 15 percent between 2009 and 2030, based on permits issued for new or expanded coal plants, although the total U.S. power plant carbon emissions fell 3.1 percent in 2008, according to the Environmental Integrity Project.

The electric utilities industry accounts for 25 percent of carbon dioxide emissions worldwide, which is the largest share among all industries, according to CDP. The report cites that unless reduced, the build-up of greenhouse gases from utilities’ burning of coal and fossil fuels will accelerate globally.

A key finding: While 61 percent of utilities forecast future greenhouse gas emissions, 59 percent say they have emission reduction plans in place, but not all have publicly disclosed targets for reduced emissions. Only a small number of utilities are setting and disclosing absolute emission reduction targets, while a higher percentage are setting intensity targets that still allow greenhouse gas emissions to grow, according to the report.

Less than half of the surveyed companies disclosed current electricity generation capacity and production figures by fuel type, and only 14 out of the 110 respondents provided data on forecasted capacity and production. CDP says this lack of disclosure raises the question of how much electric utilities will need to pay for their ongoing carbon emissions, or pass on to consumers, as emissions trading systems and carbon taxes come into play.

Already, utility companies are delaying some new project plans and are evaluating how much they will have to raise rates in light of the U.S. Environmental Protection Agency’s “endangerment” ruling and how carbon emission regulations will playout.

So which utilities are doing the best job? The three highest scoring companies globally are Australia’s AGL at 81 and Iberdrola and Endesa from Spain at 82 and 85 points, respectively. These three leading utilities all provide quantitative data for their Scope 1, 2 and 3 GHG emissions and calculate the emissions intensity of their operations according to standard financial metrics, providing specific emissions reduction targets and strategies to achieve these targets, according to the report. These scores are based on the report’s Carbon Disclosure Leadership Index, or CDLI, which ranks all 110 electric utilities responding to the survey on the extent and quality of their climate change disclosure.

On a scale of 1 to 100, the average CDLI score for North American utilities was 49. Of the two California utilities in the survey, Edison International scored 47 and PG&E scored 51. U.S. utilities included: Duke Energy Corporation at 61, Consolidated Edison, Inc. at 75 and Exelon Corporation at 78.

The report calls for an “energy revolution” in order to reduce greenhouse gases and the need for policies to put a price on carbon, slow electricity demand growth and encourage faster replacement of high-emitting plants with lower-emitting and renewable energy alternatives.

The UK government already has signaled a major change as it increases its efforts to meet tough greenhouse gas emission (GHG) reduction targets. Britain announced plans to force all new coal plants in the country to test a pioneering carbon-cutting technology, making Britain the first country to require coal plants to fit carbon capture and storage (CCS), reports Reuters. Britain has set a target goal to cut GHG emissions by 34 percent by 2020 and recently announced binding carbon emission targets.

According to the utilities report, CCS has major implications for coal-dominated utilities, and global CO2 stabilization targets. The report cites The International Energy Agency, which projects that 160,000 MW of coal-fired capacity would need to be equipped with CCS to achieve a 550-ppm stabilization target by 2030 and that an additional 190,000 MW would need CCS if the target was further reduced to 450 ppm.

In Britain, initially, new plants would have to apply CCS to only about a quarter of power production rising to all output by 2025, and the government would fund up to four CCS test plants, according to the Energy and Climate Minister Ed Miliband, reports Reuters. He expects the first test plant to up and running by 2015.

CCS adds about $1 billion to the cost of a power station and funding for the test plants would be raised either by a premium on electricity produced or a payment per unit of carbon stored, reports Reuters. This would raise consumer power prices by about 2 percent by 2020.

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