Decarbonizing the U.S. Electricity Grid: Policy and Regulatory Frameworks and Challenges

Introduction

Meeting the electricity demands of the 21st century will require unprecedented changes to the way we produce and use energy. If present trends continue, it is almost certain that electricity will comprise a greater share of the world's energy mix and a greater percentage of this electricity will be produced from sources other than fossil fuels. In the United States, the Biden administration committed to achieving 100 percent carbon-pollution-free electricity by 2035, although that target is not enshrined in any federal law. As of the end of 2023, 20 states and Washington, DC, have statutory or executive commitments to reduce greenhouse gas emissions within state boundaries or control.¹ A decarbonized world will require sectors—such as transportation, most manufacturing, most data centers, and the heating of buildings—to convert from fossil fuels to using electricity generated by facilities that are zero- or low-carbon-emitting. Electrification will increase the demand for clean energy, requiring the power industry to invest significantly in new generation, transmission, storage, and distribution systems.

To deploy such investments, both federal and state governments will need to develop new regulatory frameworks to encourage efficient cost distribution, financing, and permitting. Starting with renewable portfolio standards in the late 1990s, states have embraced a range of decarbonization goals and policies. Examples include New York having a statutory target of zero-emission electricity by 2040 and North Carolina requiring its generators to take all reasonable steps to achieve a 70 percent emissions reduction.² However, greater clarity on the role of state, regional, and federal entities will be required, particularly which jurisdictions have the ultimate authority for planning and how the myriad number of actors in the decarbonization effort will coordinate their actions. We discuss the state policy and regulatory initiatives that have been taken and are under consideration to develop and implement decarbonization goals. 

The remainder of the chapter is divided into seven sections. Sections 2 and 3 provide background on future projections for growth in the demand for electricity and the respective roles of federal and state regulatory structures. In Section 4, we explore the role of regional markets as various public and private interests compete to introduce ever greater amounts of renewable power onto the grid. In the fifth and sixth sections, we dive into the future roles of federal and state regulation as the United States strives to decarbonize its electricity sector by managing the transmission and distribution systems. The seventh and final section ties these strands together and lays out a path for the future.