American Electric Power Settles Pollution Case

American Electric Power [AEP] has thrown in the towel on an 18-year-old lawsuit the Environmental Protection Agency, nine states and 13 environmental groups started against it under the Clean Air Act. The basic charge was AEP had illegally modified its power plants and sent acid rain producing chemicals into the air. The company denies doing anything wrong yet will cough up $15 million in civil penalties, $60 million in pollution cleanup costs and $1.6 billion starting in 2017 to upgrade a major coal-fired power plant in southern Indiana. The externalities of AEP’s business are finally being addressed.

Back in Econ 101, somewhere between a kinked demand curve and velocity of money, there was an all too brief mention of “externalities.” These are costs involved in producing a good or providing a service that are borne neither by the buyer nor the seller. They are external (hence the name) to the transaction, and they are essentially a subsidy by the society as a whole to both parties in the transaction. As such, they are inherently a problem that needs governmental action to address.

In the case of AEP, the externality was the cost of the acid rain that the company says had nothing to do with it. Coal was burned to create electricity that was then sold to users of electrical power. The sulfur in the coal went into the atmosphere, increased the acidity of rain water down wind, and ruined trees and fishing holes. This damage was part of the cost of making that electricity, but neither AEP nor its customers had to pay a penny for it.

After spending so much time and effort defending the suit, AEP finally yielded to reality after this spring’s Supreme Court decision in Environmental Defense v. Duke Energy Corp. As the Washington Post explained it, “the court backed the policy dating back to the Clinton administration aimed at making power plants install new pollution-control equipment. The justices’ unambiguous ruling made it clear to utilities that sooner or later, they might be forced under law to curtail their emissions from aging coal-fired plants.”

The Post also reported, “Last year, AEP's power plants emitted 828,000 tons of sulfur dioxide, an environmental group involved in the litigation said. That level is expected to decline to 450,000 tons in 2010, in part because of spending already planned. Under the settlement, sulfur dioxide emissions must drop to 174,000 tons by 2018, sources said. In 2006, AEP produced 231,000 tons of nitrogen oxides. That level is expected to decline to 96,000 tons by 2009 and under the settlement must fall to 72,000 tons by 2016.” This is excellent progress for the environment, and for economic rationality. There is, though, the matter of 72,000 tons of bad stuff in 2016 for which someone will still need to pay.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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