Welcome to our exploration of the current state of energy generation in the U.S. and China. As the world strives for “clean” energy solutions, the reality is often more complex than it appears. This article examines how technological advancements, particularly in electrification, interact with traditional energy sources and the implications of this dynamic for the environment.
Yves here. This humble site has often highlighted how “clean” energy may not always live up to its promises due to the environmental impacts of the materials involved and the reliance on non-renewable energy sources. In the United States, there has been a significant push to transition electricity generation away from coal, and to some extent, other fossil fuels. However, this initiative has recently reversed, largely due to increasing demands from data centers and a political climate favoring fossil fuel use. In stark contrast, China has been expanding its coal-fired power plants, with coal making up 59% of its electrical generation in 2024, compared to 19.5% in the U.S. While the U.S. shift has been primarily from highly polluting coal to cleaner but still CO2-emitting natural gas, China is actively working to alter its energy profile. Meanwhile, the U.S. seems to have shifted gears and is reverting back to a heavier reliance on fossil fuels.
By Leonard S. Hyman, a seasoned economist and financial analyst focused on the energy sector, and William I. Tilles, a senior industry advisor and speaker on energy and finance, both of whom have led utility equity research at major brokerage firms. Originally published at OilPrice
- The U.S. is expanding its electric vehicle fleet, data centers, and heat pumps—yet the power supplied to them increasingly comes from fossil fuels.
- Policymakers are approving new natural gas facilities and extending the operations of existing coal plants.
- The U.S. is building a more extensive power capacity for electrification, but this comes without significant reductions in carbon emissions, leading to a future where “clean tech” is powered by dirty energy sources.
One of the critical misunderstandings regarding electrification is the assumption that emerging technologies, like electric vehicles, would inherently align with decarbonization goals. Unfortunately, this has not been the case. In fact, the opposite has unfolded in the U.S. The paradox of electrification without decarbonization can be illustrated through two prominent technologies—electric cars and heat pumps. While both displace fossil fuel usage, they still rely on electricity produced mostly from fossil fuels. Many believed that the large coal-fired power plants favored by utilities would ultimately be replaced by cleaner alternatives, such as small modular reactors or widespread solar installations. Instead, policymakers have opted to overlook environmental concerns and endorse increased fossil fuel reliance. This translates into permissions for new natural gas power plants and permission for coal plants to remain operational.
Given that power plants typically last forty years or more, new facilities inevitably come at a higher cost due to inflation. A common criticism of renewable energy technologies, such as offshore wind or solar with battery storage, is their expense compared to fully depreciated facilities they replace. While this is a valid point, the reality is that all new power generation facilities, regardless of their technologies, are costlier than the plants they supersede. These capital expenses are significant because the assets financed are expected to remain operational for decades. However, renewables have a notable advantage over fossil fuel plants: they incur minimal operating costs since they primarily rely on natural resources like wind or sunlight. Over a span of thirty to forty years, the expense differences become substantial, even if such nuances are often overlooked in today’s politically charged environment. And yes, we acknowledge the intermittency of renewables.
This concept of electrification without decarbonization has found support among technology executives such as former Google CEO Eric Schmidt. During an AI conference last October, Schmidt expressed that achieving environmental goals like decarbonization is secondary to the expansion of data centers. His point seemed to be, “Forget about your climate targets; you won’t meet them anyway.” He even suggested that the proliferation of data centers might resolve the climate crisis. This assertion reflects an age-old corporate mindset: the unlimited right to pollute with minimal governmental interference. Interestingly, no prominent political figure has openly endorsed such a perspective since the McKinley era, yet here we find ourselves.
Executives like Schmidt and companies like Google are advocating for rapid growth in domestic power generation resources while explicitly downplaying the importance of CO2 emissions and their environmental consequences. They support more fossil fuel plants as long as electricity remains affordable and accessible. Their main demand is significant investments—amounting to hundreds of billions—in expanding the existing generation capacity. These costs may be absorbed “inside the fence” by the data centers or passed on to consumers through local utility rate increases.
As analysts, we must consider whether this opinion has gained traction among senior policymakers in Washington and what this implies for the future. What would a pollution-tolerant expansion of the U.S. power grid entail? In two words: more gas. The absence of new coal plants in the U.S. over the past few decades has been due to the competitive economics of domestically sourced natural gas. A government administration indifferent to pollution doesn’t reverse the unfavorable cost dynamics of new coal plants. Notably, even a utility-friendly administration in Washington hasn’t significantly changed prospects for future gas-fired plants. According to the U.S. Energy Information Administration (EIA), approximately 18.7 gigawatts of new gas capacity is projected to be added by 2028, marking a notable increase relative to prior years. Historical trends capture what a major commitment to new gas generation looks like: between 2000 and 2005, the U.S. added more than 160 gigawatts of gas capacity, with nearly 50 gigawatts in 2000 alone. The EIA anticipates about 11 gigawatts in 2028, a supposed breakout year. Those are indeed rookie numbers.
In conclusion, it appears that policymakers in Washington have created an environment that permits greater pollution from fossil fuel power generation. Whether this leads to a substantial increase in new fossil-fuel operations remains to be seen. Contrary to widespread expectation, the current goal seems to prioritize electrification, particularly for AI, without adequately addressing decarbonization.
