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AEP Coal plantAmerican Electric Power has shelved plans to build one of the nation’s first carbon capture and storage facilities, terminating a cooperative agreement with the U.S. Department of Energy.

In a statement, AEP cited the “current uncertain status of U.S. climate policy” and the weak economy as reasons for halting plans for a commercial-scale CCS system at its Mountaineer coal-fired plant in New Haven, W.Va. (pictured). In 2009, the Department of Energy selected AEP’s CCS project for funding of up to $334 million.

Plans called for the system to capture about 1.5 million metric tons of CO2 per year, which would have been treated, compressed and stored about 1.5 miles below the earth’s surface.

The project was originally planned to be completed in four phases, with commercial operation beginning in 2015. AEP now says that it will complete the first phase of the project, consisting of front-end engineering and design, development of an environmental impact statement and development of a detailed Phase II and Phase III schedule, but will not move to the second phase.

AEP says it expects DOE’s share of the cost for the first phase to be about $16 million.

“We are placing the project on hold until economic and policy conditions create a viable path forward,” said chairman and CEO Michael G. Morris. “With the help of Alstom, the Department of Energy and other partners, we have advanced CCS technology more than any other power generator with our successful two-year project to validate the technology. But at this time it doesn’t make economic sense to continue work on the commercial-scale CCS project beyond the current engineering phase.”

Company officials said they were dropping the $668 million project because they did not believe state regulators would let the company recover costs through customer charges, the New York Times reported.

The company has said that without federal legislation to address climate change, it cannot justify significant investment aimed at reducing its carbon footprint. And it said that proposed Environmental Protection Agency (EPA) regulations, including the Hazardous Air Pollutants Rule, Clean Air Transport Rule, Regional Haze Program Implementation Plans, Coal Combustion Residuals Rule and proposed Clean Water Act standards, would cost AEP $6 billion to $8 billion by the end of the decade and raise electricity prices for its business customers by 10 to 35 percent or more.

By putting the project on ice, AEP could be creating a years-long delay in efforts to bring carbon capture technology to market, the Times said.

The CCS system would have captured at least 90 percent of the carbon dioxide from 235 megawatts of the plant’s 1,300 megawatts of capacity. AEP and partner Alstom began operating a smaller-scale validation of the technology in October 2009, in what the company called the first fully-integrated capture and storage facil