A 1974 American Electric Power advertisement claim rings hollow today.
There was a lot of breaking news during the summer of 1974. Watergate was in full swing, culminating in President Nixon’s resignation on August 8, oil prices were skyrocketing, and Patty Hearst was still held by kidnappers. All these monumental headlines may explain why my parents decided to save a couple issues of the New York Times from that July, and why I came across them at their house a couple weeks ago.
The back page of the July 31, 1974 front section had an amazing advertisement, which I’ve reproduced below.
There are a number of striking things about this ad.
- American Electric Power’s claim to environmentalism. The ad is for American Electric Power (AEP), who today produce more electricity from coal than any other US company by a long shot (see the figure below, which is based on this report.) Producing electricity from coal has a lot of advantages – low cost being one of the main ones. Benefits to the environment, however, are not one of coal’s selling points.
More than two-thirds of AEP’s 2015 generation is from coal-fired power plants. That’s a higher share than any of the other top-15 US power producers. All told, AEP is the largest electric utility emitter of CO2, accounting for almost 2% of the US’s total CO2 emissions.
In addition to their CO2 emissions, coal plants produce some gnarly local pollutants, such as sulfur dioxide, nitrogen oxides and particulate matter. In the late 1990s, AEP was one of the targets of a series of federal lawsuits alleging that the defendants hadn’t complied with federal requirements to install control equipment to mitigate these pollutants. Under the so-called New Source Review process, companies were supposed to apply for permits from the EPA whenever they made major modifications to their power plants that increased their emissions. Regulations that grew out of the Clean Air Act required power plants to install pollution control equipment when they were built, so New Source Review was designed to prevent companies from skirting the requirements for new plants by keeping old plants in service with major refurbishments. The lawsuits alleged that companies did not comply with New Source Review. AEP eventually settled its case, agreeing to install what the EPA claimed was $4.6 billion worth of new pollution control equipment.
AEP is also famous amongst Coasian economists for buying out an entire town instead of addressing townspeople’s objections to the pollution from the local coal plant. The people of Cheshire, Ohio had been complaining for years about pollution from AEP’s Gavin plant, so in 2002, the company offered every one of the town’s 450 or so residents 3.5 times the assessed value of their property if they agreed to move and never complain about the pollution. (This article has a great discussion of the issues.) Ronald Coase won the Nobel Prize in economics for, among other things, noting how difficult it is to
strike deals between polluters and people affected by the pollution, so some of us discuss this counterexample in environmental economics classes.
Recently, the company has lobbied against Obama-era regulations designed to address climate change. If I were an AEP shareholder, I would probably want them to make those arguments, given their investments in coal-fired power plants, but it does detract from their claims to environmentalism.
I have no idea whether AEP’s ad seemed cynical in 1974. Maybe not, since climate change wasn’t part of the public discussion and the US was worried about supplying its own fossil fuels. But, it sure rings hollow today.
In a sign of the changing times, however, AEP recently announced its intention to purchase a 2,000 MW wind farm in Oklahoma once it’s built. Wind is really going mainstream if the company that the Cheshire article claims used “capitalism in its purest form” is making this large an investment.
- What they’re calling environmentalism. The caption to the photo claims that, “Once this was famished farmland, then our stripmine. We reclaimed it into lovely woodland and lakes – a tiny part of our investment in environment.” So, AEP is highlighting their strip mining activities, but claiming they’re environmentalists because they’ve patched up the strip mined area with a wooded pond that cherubic children will stand next to, but maybe not swim in? I wonder whether the emphasis on “clean coal” touted in this ad is what makes people skeptical of carbon capture and sequestration.
- The timeless emphasis on energy independence. The bottom right of the ad has the silly cartoon drawing of what are presumably supposed to be Arab oil sheikhs and the phrase, “America has more coal than the Middle East has oil. Let’s dig it!”
I can just picture the groovy Mad Men Season 7-era creative directors who came up with the “Dig it” phrase. I wonder if they’d be proud to see how it resurfaced during the summer of 2016?
My colleagues in marketing suggest that investments in advertising can pay off over a long time, as people remember the message. So, maybe there are some of us who still – at least in some residual piece of our subconscious – think that AEP is a green company and that digging lots of coal will help the environment. It does make me wonder – which 2017 ads will seem most anachronistic in another 43 years?
Catherine Wolfram is the Cora Jane Flood Professor of Business Administration at the Haas School of Business, Co-Director of the Energy Institute at Haas, and a Faculty Director of The E2e Project. Her research analyzes the impact of environmental regulation on energy markets and the effects of electricity industry privatization and restructuring around the world. She is currently implementing several randomized control trials to evaluate energy efficiency programs.