Issue Breakdown: Fixing EPA’s Phase I Carbon Rule to Power Growth and Integrate Renewables

A detailed breakdown of public power policy priorities

The U.S. grid is entering an unprecedented era of growth. After two decades of flat demand, electricity use is now climbing sharply as data centers, artificial intelligence, advanced manufacturing, and electrification take off. Meeting this challenge will require tens of gigawatts of new dispatchable generation capacity — and LPPC members are preparing to add 58 gigawatts of generation capacity across natural gas, nuclear, hydro, storage, renewables, hydrogen, and carbon capture.

The Challenge

EPA’s 2024 performance standards for new natural gas turbines (known as Phase I standards) were designed to reduce carbon emissions. However, in practice, these standards are unachievable under typical real-world operating conditions. They do not account for recurring realities like fluctuating load, high ambient temperatures, and normal turbine wear.

This creates regulatory uncertainty at the very moment that utilities need clarity to move forward with critical new generation projects.

Why It Matters

• Reliability: Tens of gigawatts of new dispatchable generation are needed by 2030 to keep pace with surging demand. Standards that cannot be met under typical real-world conditions create uncertainty and risk delaying projects at the very moment when reliability margins are tightening.
• Affordability: Because Phase I sets CO₂ limits below what most turbines can achieve in everyday operation, many utilities would be forced to treat new units as low-load peakers — running them at less than a 20% annual capacity factor. This approach is less energy efficient, drives up fixed costs by requiring overbuilding, and ultimately raises customer bills with little to no carbon benefit.
• Supply Chain Strain: Compliance-by-peaking forces utilities to build additional turbines to replace the capacity lost from running units inefficiently. Manufacturers are already backlogged, and this approach further strains supply chains, delays delivery of urgently needed capacity, and diverts resources away from projects that could meet demand growth and support renewable integration.
• Clean Energy Integration: Flexible natural gas turbines provide the quick-start and ramping capability that make wind and solar reliable. Under Phase I, only a few of the largest turbine models can comply — and then only when operated steadily at full-load. This creates a perverse incentive that penalizes flexible, mid-load operation. The result is less portfolio diversity, reduced system flexibility, harder renewables integration, and potentially higher overall carbon emissions.
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Opportunities for Improvement

EPA has acknowledged the need to revisit the 2024 standards but the proposed approach could take years and will likely face litigation. During this time, new projects would still be bound by unachievable standards just as tens of gigawatts of dispatchable capacity is being built to meet current demand. It’s possible for EPA to take constructive steps now that will help meet environmental goals while ensuring grid reliability:  

• Revise Phase I Standards – Launch a supplemental rulemaking so that achievable standards can be finalized in 2026.
• Provide National Guidance – Clarify how CO₂ limits apply in the New Source Review process, so projects are not stranded by interim requirements.
• Fix Applicability Rules – Ensure projects with contracts signed after May 2023 are not locked into standards that do not reflect real-world performance.
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Why Policymakers Should Care

Without these updates, utilities face unnecessary barriers to building the dispatchable generation required to:

• Maintain grid reliability during rapid electric demand growth
• Enable economic growth tied to AI, advanced manufacturing, and re-shored industries that depend on reliable, affordable electricity
• Keep electric service affordable for communities
• Support continued renewable energy integration

That’s why getting Phase I right is essential — not just for utilities, but for the nation’s ability to power economic growth while continuing to advance clean energy goals.