Decarbonizing the U.S. power sector: Progress and opportunities 

The power sector is responsible for nearly a third of U.S. greenhouse gas emissions. To meet its decarbonization goals, the U.S. will need to reduce grid emissions while also building a strong electricity grid to connect new, low-carbon energy sources. Reducing emissions from the power sector requires a combination of strong regulations and incentives to invest in a cleaner electricity supply. Earlier this year, the Environmental Protection Agency (EPA) achieved a significant milestone to strengthen regulations by finalizing carbon pollution standards for existing coal and new gas-fired power plants under the Clean Air Act. CATF has written about this important progress and opportunities for states to implement these regulations here. Read on to learn about U.S. progress toward the second part of reducing emissions: to incentivize private investments in clean power. 

Decarbonizing the power sector will require additional grid capacity for new clean energy solutions, a reliable and affordable supply of clean energy, and energy access for all, including rural and remote communities. Federal funding opportunities and coordination, as well as state initiatives, have played an important role in progress to date. There are further opportunities for federal agencies, states, communities and the private sector to build on this progress. The Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA) provided funding to address these needs, but there is still work to do. 

Recent progress to decarbonize the U.S. power sector 

The primary sources of electricity on the U.S. power grid remain coal and gas, but wind and solar are on track to outpace coal generation in 2024 for the first time. Electricity demand is growing quickly for the first time in decades, in part due to decarbonization of the industrial and transportation sectors via electrification, the growth of data centers, and reinvigorated U.S.-based manufacturing. The grid therefore faces two main challenges: (1) decarbonizing existing electric capacity; and (2) doubling-to-tripling new clean energy capacity, which also requires doubling today’s transmission infrastructure. In addition to rapid expansion of solar and wind resources, the grid needs a mix of energy solutions to achieve a steady supply of clean power, including nuclear energy, geothermal, and other “clean firm” technologies. Rural and remote communities will also need access to low-carbon energy solutions and the associated grid expansion. 

Federal activities 

The federal government is setting policies, creating new funding opportunities, disseminating IRA and IIJA funding, and providing guidance to public and private stakeholders to address the aforementioned challenges. These policies include moving toward carbon pollution-free electricity (CFE) by 2030 and leveraging federal procurement for CFE for federal facilities. Agencies are also exercising authority to streamline siting, long-term planning, and interagency permitting.

Federal policies and related actions include: 

• DOE publication of the Advanced Nuclear, Innovative Grid, Next-Generation Geothermal Power, and Virtual Power Plants Liftoff Reports. 

• DOE proposed National Interest Electric Transmission Corridors (NIETCs) to relieve congestion and cost to ratepayers, streamline siting, and unlock energy potential from developing low-carbon energy sources. NIETCs are eligible for loans from the Transmission Facilitation program and the Transmission Facility Financing program. Evaluation of the potential corridors is expected fall 2024.  

• DOE finalized rules for its Coordinated Interagency Transmission Authorizations and Permits Program to establish DOE as the lead agency for select National Environmental Policy Act reviews and streamline those reviews to two years. DOE also released its National Transmission Needs Study. 

• FERC issued Order No. 1920, requiring regional transmission providers to conduct long-term planning and update plans every five years. 

• Bureau of Ocean Energy Management (BOEM) and Bureau of Safety and Environmental Enforcement (BSEE) finalized regulations for renewable energy development on the U.S. Outer Continental Shelf. 

• NREL published its Atlantic Offshore Wind Transmission Study, and GDO published the Atlantic Offshore Wind Transmission Action Plan 

• Treasury has issued draft rules to enable clean electricity producers to receive tax credits for the production of low-carbon electricity. 

• The U.S. government set a goal in Executive Order (E.O.) 14057 to reach 100% CFE on a net annual basis by 2030, at least 50% of which is 24/7 carbon free electricity. Now agencies are setting their own purchasing commitments to support this goal, as the General Services Administration (GSA) recently announced a purchase to enable 185 GSA-managed federal buildings in 12 states to run on 100% carbon pollution-free electricity.  

• Fusion energy has been steadily gaining momentum, through new funding opportunities, the Fusion Innovation Research Engine (FIRE) Collaboratives, an upcoming public-private consortium framework, and the recently released Fusion Energy Strategy 2024. DOE anticipates publishing a roadmap to further advance fusion energy in early 2025. 

• DOE is advancing pilot demonstrations of enhanced geothermal systems (EGS) including funding specified for superhot EGS, with funding available for projects in the eastern U.S. now open for application. This follows the Enhanced Geothermal Shot™ and GeoVision analysis. 

• DOE is managing the Advanced Reactor Demonstration Program (ARDP) program for design through operations for two advanced reactor technologies. The Civil Nuclear Credit Program supported Diablo Canyon Power Plant to continue operations.  

• DOE recently issued a notice of intent to open a funding opportunity for Gen III + and SMR reactors for first movers and close followers, in part to support the creation of an orderbook.  

• DOE published an information guide for communities considering replacing their coal fired power plants with nuclear power plants based on a recent study of the benefits to local jobs and economies, and lower construction costs. 

• DOE recently established and funded a consortium focused on advancing geothermal, specifically Geothermal Energy from Oil and Gas Demonstrated Engineering (GEODE). 

The chart below depicts some of the key federal grant programs aimed at power sector decarbonization, their total funding amounts (“Funds Allocated”), and funds remaining to be spent (“Funds Remaining”). As shown in the chart, programs are at various stages of implementation. For example, we have seen multiple rounds of project announcements from the Grid Resilience and Innovation Partnerships (GRIP) Program while the first Empowering Rural America (New ERA) program announcements are anticipated late summer/early fall of this year.

Figure 1. Federal funding to decarbonize the power sector

Bipartisan support is building for energy solutions that could offer a continuous supply of low-carbon energy necessary to maintain a reliable grid, including nuclear fission and next-generation geothermal technologies as well as support for early-stage fusion technologies. Federal clean energy tax incentives are also spurring investments in the power sector. The Department of the Treasury (Treasury) is actively developing rules to incentivize clean electricity through the 45Y production and 48E investment tax credits, which have enormous potential to accelerate the production of clean electricity. Rhodium Group analysis finds that in 2035, 45Y and 48E combined deliver 300-400 million tons of GHG reductions compared to no tax credits, nearly 650 gigawatts more clean electricity capacity, a 20% drop in air pollutants, and $16-$34 billion in consumer savings in annual electric costs.

Federal funding highlights include: 

• DOE opened phase two of the Renewable Energy Siting through Technical Engagement and Planning (R-STEP) program to create or expand state-based programs that improve renewable energy siting processes at the state and local levels.  

• DOE issued $3.46 billion for 58 Grid Resilience and Innovation Partnerships (GRIP) projects across 44 states, issued $1.3 billion to three transmission lines crossing six states, and opened a $2.5 billion revolving fund through the Transmission Facilitation Program (TFP) to build and upgrade transmission lines. DOE also released the first round of Transmission Siting and Economic Development (TSED) grant funding, with four grants of over $16 million total supporting siting and permitting, and expects to release the second round in fall 2024. 

• USDA is leading funding efforts for rural energy, providing over $375 million through the Powering Affordable Clean Energy Program (PACE) and the Rural Energy for America Program (REAP) programs. USDA also released a Rural Energy Resource Guide to help rural communities identify funding for clean energy projects.  

• Earlier this year, DOE announced over $360 million for 17 selected projects across 20 states and 30 Tribal Nations and communities to accelerate clean energy deployment in rural and remote areas through the Energy Improvements in Rural or Remote Areas (ERA) program.   

• DOE closed a high-assay low-enriched uranium (HALEU) request for proposals this year meant to establish a HALEU supply chain for advanced nuclear reactors. DOE also opened a $2.7 billion request for proposals for low-enriched uranium to build the domestic nuclear supply chain. 

Federal funding is also available to support grid expansion, including the DOE Loan Program Office transmission loan authority, grid innovation grants, and formula grants to states and tribes to modernize and improve transmission. Additionally, significant new EPA rulemakings under the Clean Air Act set new carbon pollution standards for existing coal and new gas-fired power plants, which, in combination with other rulemakings, will drive greater emission reductions from the power sector.

Federally funded projects in states and communities 

Over 20 states have established 100% clean electricity goals. Some states have established clean energy standards, and some allow customers to choose to purchase clean electricity voluntarily. These goals will require investments in grid expansion and clean energy supply. From investments in transmission projects across multiple states, to significant investments to protect the existing nuclear fleet, we are starting to see federal funding and policies support the decarbonization of the power sector. REAP funding alone totaled over $145 million by the end of 2023 and included renewable energy projects and other rural energy projects across the country. 

Progress includes: 

• West Coast/Western U.S.: DOE is funding cross-state transmission lines between Idaho and Nevada and between Utah and Nevada to address regional needs through the first round of the TFP program, which solely benefited Western states and created 13,000 direct and indirect jobs. DOE also proposed a NIETC in the Mountain-Northwest, which would cross most of Nevada to Oregon, to help fill a need for greater interstate capacity. The Ten West Link transmission line went into operation this year, enhancing the Western electric grid with 3,000 MW of interconnected renewable energy. The Diablo Canyon nuclear power plant in California is also continuing operations due to the Civil Nuclear Credit program.   

• Midwest/Plains: Indiana, Iowa, Michigan, and Wisconsin are recipients of R-STEP funding to support planning, siting, and permitting for large-scale renewable energy facilities. A Wisconsin entity, Eaton Corporation, is also a recipient of a 48c grant from DOE for grid components and modernization. DOE is funding the Southline Transmission Project from Arizona to New Mexico under the TFP program. DOE has also proposed five Midwest and Plains NIETCs which would greatly increase interregional capacity across the Midwest and Plains. 

• Gulf Coast: Mississippi won an R-STEP award to support large-scale solar energy development. Texas, Louisiana, and Alabama entities received millions in 48c credits from DOE for grid components and modernization, and entities in these states also received funding under REAP for rural renewable energy projects, with a significant number of selections in Texas.  
• East Coast: A North Carolina and South Carolina collaborative won R-STEP funding to create a technical assistance and education hub to respond to concerns in energy planning processes. Entities in Pennsylvania, Maryland, North Carolina, and Florida were selected for millions in 48c credits, including the Pennsylvania project for Prysmian in support of power transmission. DOE has also proposed four NIETC coordinators in the mid-Atlantic and New England states to increase interregional capacity. Several states received TSED grants for siting and permitting and economic development activities, and others received second-round GRIP funding. New England states were selected to receive $389 million GRIP funding as a region.

The map shown in the image below highlights recent project announcements across the U.S. from some of the key federal funding programs aimed at decarbonizing the power sector. 

Figure 2. Federally funded projects for decarbonizing the power sectoraa as shown on CATF’s Built to last: Climate progress near you map

2025 and beyond: What happens next?  

While federal policies and funding are in place, clean energy is not being deployed fast enough to decarbonize by 2050. It will take coordinated efforts across federal and state agencies, communities, Tribal governments, and private entities to implement clean energy solutions and connect new generation to the electricity grid.

Federal actions 

We need federal leadership to support the planning and development of interstate transmission, unlock siting and permitting, and leverage federal procurement to drive demand for clean electricity. Additional federal funding for grid improvements and expansion will be necessary to connect low-carbon energy sources to the grid, including in rural communities that have limited access to clean energy options. 

The Federal government should continue investments in low-carbon energy solutions to reduce U.S. emissions. In contrast to solar and wind, which are well commercialized, technologies that can provide continuous, reliable supplies of clean energy, such as superhot rock geothermal and nuclear energy, (both fission and fusion), need significant federal investment and partnerships with the private sector to pilot and demonstrate new technologies and build the necessary regulatory and market conditions to succeed.

The EPA recently finalized carbon pollution limits for existing coal-fired and new gas-fired power plants in April. EPA must next propose emissions guidelines for existing gas-fired plants, which it is planning  to do later this year. CATF will be following this progress to ensure that regulations remain an integral component of reducing emissions from the power sector. 

State and local actions 

States also have policy options to maximize federal funding opportunities and lead the clean energy transition. They can continue to adopt and strengthen their existing clean electricity standards or goals ensure rigorous implementation of clean energy policies by public utility commissions and environmental agencies, and work collaboratively with ISO/RTOs, federal and local governments, developers, and other stakeholders to achieve emissions reductions. States can be leaders in supporting siting and permitting of new resources while also addressing community concerns. States may explore opportunities to integrate different clean energy solutions into their energy portfolios, support in-state transmission planning, take a lead in clean procurement, and work collaboratively with other states on interstate, regional, and interregional transmission planning. 

Utilities and energy developers must accelerate the production, purchase, and use of clean electricity by investing in clean energy and transmission projects. Utilities should take advantage of available federal funding and tax credits to invest in the clean energy solutions and grid expansion needed to decarbonize the power sector. Utilities should use their long-term integrated planning processes to evaluate clean firm technology opportunities and give customers a choice to diversify their energy supply. Where possible, utilities should coordinate to create orderbooks for emerging technologies to reduce costs of deployment. Developers of lower carbon energy can take advantage of the generous production tax credits to build a competitive clean energy supply.

The U.S. needs stronger greenhouse gas accounting protocols to enable corporations to lower emissions from electricity use, including updates to Scope 2 GHG accounting. Better accounting and disclosures could change how large electricity buyers are incentivized and recognized for buying clean energy and increase their impact in decarbonizing the electricity grid.  To see our recommendations, see here and here.  

CATF’s recommendations for federal procurement of carbon-free electricity are here. CATF’s recommendations for accelerating transmission and permitting are here. 

To learn more about funding for lowering emissions from the power sector, and view available federal resources, visit our U.S. Implementation Resource Hub.