Southern Company CEO Tom Fanning floated a potential update to the company’s maligned “low- to-no carbon” greenhouse gas goal in a company podcast aired on December 19, 2019. The updated greenhouse gas (GHG) goal, as described by Fanning, would allow Southern Company to claim “net-zero” emissions by taking credit for transportation electrification, despite the company’s continued use of fossil fuels like coal and gas.
Southern Company’s current “low- to-no carbon” goal has come under scrutiny for sleights of hand that allow the company to increase its use of fossil fuels and remain among the highest carbon-polluting utilities in the country by 2050. Fanning’s GHG bonus plan, unveiled in 2019 and updated in 2020, currently allows him to earn up to $2 million annually without transitioning the company out of fossil fuels. Changes to Fanning’s bonus structure appear to make it easier for him to receive a GHG bonus, even as Southern adds substantial gas infrastructure to its generating fleet.
Southern Company is slowing down its decarbonization, according to an analysis by the Energy and Policy Institute. Southern’s slow action on clean energy poses risks to investors and is likely causing it to miss out on earnings opportunities from the transition, analysts at Morgan Stanley noted. The investment firm stated, “the company [Southern] has exhibited a slower than average pace in its decarbonization strategy.”
“We can take credit”
In response to a statement from the podcast host about a Virginia Natural Gas pledge, Fanning spoke about a potential update to Southern’s “low- to-no carbon” goal whereby the company would count emissions reductions from consumers switching to electric transportation toward its GHG goal. He claimed, “in fact we can take credit for and have a little more flexibility really in hitting no [carbon], by changing transportation fuels and advancing electric transportation.”
Fanning’s statement about an updated GHG goal counting electric transportation belies the reality of how emissions work for utilities and the grid. As consumers switch to electric transportation from gasoline and diesel, overall emissions drop, as studied and reported by the Union of Concerned Scientists. However, the switch to electric transportation does not obviate a utility’s need to decarbonize. For utilities to reduce emissions in accordance with decarbonization pathways that would avoid the worst impacts of climate change, experts say that they must fully power the new electrified transportation sector with clean sources and still decarbonize its existing fleet.
Full decarbonization of electricity needed to keep global warming to 2 degrees Celsius or less
Fanning’s GHG proposal is inconsistent with the International Panel on Climate Change (IPCC) pathways to limit global warming to 1.5° or even 2° Celsuis. The latest report from the IPCC spells out what that means for carbon emissions: global carbon emissions must be cut in half by 2030 and reach net-zero by 2050 to have even a 50 percent chance of reaching the 1.5° scenario.
The IPCC report gets more specific when it comes to electricity, noting that “A robust feature of 1.5°C-consistent pathways […] is a virtually full decarbonization of the power sector around mid-century, a feature shared with 2°C-consistent pathways.”
In other words, whether U.S. utilities are setting plans consistent with 1.5° or 2° scenarios – a difference that equates to extreme heat and sea level rise for hundreds of millions more people, full coral reef extinction, greater tipping point risks, etc. – either case requires all global electricity to reach zero carbon by 2050.
Limiting global warming to 2°C or below hinges not only on electrifying transportation but doing so into a fully decarbonized power sector. Southern Company, however, is projected to emit approximately 60 million tons of carbon dioxide annually in 2040 should it continue with business-as-usual operations, according to a study by Synapse Energy Economics. Southern has added 3,400 megawatts (MW) of gas capacity since 2012, and is planning to add 2,400 MW of gas, according to integrated resource plans filed with regulators.
Gas is a fossil fuel that emits carbon dioxide when burned.
Fanning’s updated GHG bonus omits key details
Southern Company unveiled a new GHG bonus plan for CEO Tom Fanning in 2019. The bonus plan, however, did not incentivize new behavior by the company or necessarily lead to emissions reductions. Instead, it provided Fanning a bonus for already planned actions according to filings and announcements made by Southern at or around the time of the bonus plan becoming public. The bonuses were hinged to coal retirements and clean energy and nuclear additions – it ignored gas, a greenhouse gas-emitting fossil fuel in which Southern is currently investing.
In its 2020 proxy statement, Southern tucked away vague updates to Fanning’s GHG bonus plan for years 2020 to 2022. While the company disclosed a new “threshold” for when the company would pay Fanning a bonus, it did not disclose the new “target” for when the company would pay out 100% of the bonus. The company only disclosed only that its “stretch” goal was 60% higher than the undisclosed 100% payout goal. Southern’s omission of the 100% GHG target hinders the ability of investors to independently evaluate Fanning’s performance.
Operating company CEOs in Alabama, Mississippi, and Georgia are not compensated for their performance toward Southern’s “low -to -no carbon” goal. The Energy and Policy Institute has previously reported that Alabama Power, Georgia Power, and Mississippi Power are not considering Southern’s goal in their respective planning processes.