AI Data Centers Are Fueling a Fossil Fuel Rebound in the U.S.

Updated October 20, 2026 10:53 pm

The United States is building a surge of new fossil fuel power infrastructure at the same time that data center electricity demand is accelerating, and a new report warns that the trend could lock in higher pollution and higher power bills for decades. The Environmental Defense Fund and Atlas Public Policy say the Trump administration’s push to favor gas and curb renewables is helping drive the shift.

The findings arrive as utilities, tech companies and grid planners race to secure enough electricity for artificial intelligence, electric vehicles and industrial growth. That demand is reshaping the power sector faster than it has in more than a decade, and the report argues the policy response is tilting the country back toward fossil fuels just as cheaper wind and solar continue to expand in much of the world.

What the new report says about the U.S. power mix

The U.S. electricity system is entering a turning point, according to the report published by the Environmental Defense Fund and Atlas Public Policy. Their central argument is straightforward: the country is adding power capacity at a moment when electricity demand is rising quickly, but the balance of that buildout is shifting away from cleaner generation and toward gas-fired projects.

The researchers examined federal data from the U.S. Energy Information Administration and concluded that the development pipeline now contains far more fossil fuel capacity than it did just months ago. That shift matters because power plants are long-lived assets. Once new gas infrastructure is built, it can shape operating decisions, market prices and emissions for decades.

The report frames this as a strategic inflection point for the grid. Utilities, regulators and developers are making decisions now that could determine whether the U.S. power sector becomes cleaner over time or instead doubles down on fossil fuels to meet short-term demand.

The U.S. power sector is at a new inflection point, with decisions made today shaping the cost, reliability, and emissions profile of the grid for decades to come.

Why AI data centers are changing energy planning

AI data centers are one of the biggest reasons electricity demand is climbing so quickly. Large computing clusters require substantial, round-the-clock power, and the race to build them is prompting utilities to seek new generation and faster grid connections.

That surge is not occurring in isolation. Factories are expanding, electric vehicle adoption continues to add load, and many utilities are dealing with aging infrastructure that needs upgrades whether or not demand is rising. Together, those pressures are driving a wave of new generation proposals.

The report does not claim that every announced data center will be built or that every forecast of future demand will prove accurate. But it does say the current scramble is already reshaping which kinds of power plants utilities are willing to back.

How much fossil fuel buildout is in the pipeline?

New fossil fuel infrastructure made up just 5 percent of all new capacity plans in 2024, according to the report. By the second quarter of 2026, that share had risen to 30 percent. If that trajectory holds, fossil fuels could account for 70 percent of the development pipeline by the end of the decade.

The authors say planned fossil capacity would reach 68 gigawatts by 2030, a 45 percent increase compared with the construction plans recorded only six months earlier. That pace of growth is especially notable because it comes while many clean energy developers are still trying to move projects from planning into operation.

How did the Trump administration affect the market?

The report argues that federal policy has reinforced the move back toward fossil fuels. Since returning to office, President Donald Trump has promoted a “drill, baby, drill” energy agenda and positioned fossil fuels as the preferred source for powering energy-intensive data centers.

According to the analysis, the administration has tried to slow the wind and solar industries through stop-work orders, permit delays and the removal of tax incentives. Those actions have not halted clean energy investment entirely, but they have made it harder for some projects to advance, especially as the last wave of Biden-era incentives runs out.

That matters because the economics of power generation have been changing for years. Even as federal policy becomes more hostile to renewables, solar and wind continue to win on cost in many markets. The result is a policy-pricing mismatch: the cheapest new electricity sources are not always the ones getting the easiest path to construction.

What is happening to wind and solar?

Wind and solar still play an outsized role in new U.S. electricity supply. Together, they generated more electricity than coal for the first time in 2024, a milestone that underscored how far the power mix has shifted over the past decade.

Solar was the fastest-growing source of new generation in 2024 and accounted for 81 percent of added capacity, according to the report. Globally, solar power has already become the cheapest electricity source in most parts of the world, strengthening the business case for continued expansion.

Even so, the report says renewable cancellations are now running ahead of fossil-fuel cancellations. That does not mean the clean-energy sector is collapsing. Instead, it suggests project developers are facing a tougher combination of policy uncertainty, financing risk and interconnection bottlenecks at exactly the moment when demand growth should be helping them scale faster.

• Wind and solar together surpassed coal in U.S. generation in 2024.
• Solar supplied 81% of new capacity added in 2024.
• Clean power remains competitive on price in many markets.
• Project cancellations are rising, especially for renewables.

Why gas is gaining ground even when it costs more

Natural gas is becoming the default option for many developers because it is familiar, dispatchable and politically favored at the federal level. In a power system under pressure, those qualities can outweigh pure cost comparisons in the short term.

But the report argues that gas is not the cheapest option over time. Utility-scale solar and wind still beat new combined-cycle gas plants on average construction economics, according to the analysis. New solar and wind projects come in around $68 to $69 per megawatt-hour, while new combined-cycle gas plants average about $90 per megawatt-hour.

That gap is important because utilities are not just choosing a fuel source. They are choosing a long-term cost structure. A gas plant may look attractive when grid reliability is the immediate concern, but it exposes customers to fuel price swings and, in many cases, to decades of emissions costs that are often not fully reflected in project bids.

What makes fossil fuel power riskier for customers?

Fossil fuel generation carries several kinds of risk beyond the upfront capital cost. Gas and coal prices can change quickly, especially during geopolitical shocks. The report points to recent price volatility as a reminder that fuel markets can affect electricity bills well after a plant is built.

There are also health and environmental costs. Gas and coal plants release the pollution that drives climate change and contribute to local air quality problems, which can translate into higher public health expenses and greater burdens on communities near generating facilities.

On top of that, utilities are already spending heavily to upgrade grids and add transmission, substations and other infrastructure needed to handle load growth. Those costs are showing up in electricity bills across the country, meaning consumers are already paying for the transition regardless of whether the new generation is clean or fossil-based.

Even if gas plants help meet near-term reliability needs, the report warns that they can lock in pollution and higher electricity prices for decades.

How reliable are AI demand forecasts?

They are uncertain, and the report acknowledges that uncertainty directly. Some analysts believe current forecasts for AI-related power demand are exaggerated, especially if companies delay projects, efficiency improves faster than expected or data centers locate in areas with available spare capacity.

That uncertainty cuts both ways. If demand is lower than expected, some proposed gas plants may never be needed. If demand is as high as planners fear, though, the grid may end up relying on fossil infrastructure that is expensive to unwind later.

In other words, the current buildout is taking place under a cloud of incomplete information. That is precisely why the report argues for caution: infrastructure choices made now may be difficult to reverse once capital is committed and permits are issued.

What does this mean for the climate and the grid?

The report suggests that the stakes go beyond the electricity sector. Power generation is one of the largest sources of U.S. greenhouse gas emissions, so the direction of new buildout has direct implications for national climate goals.

If the pipeline continues tilting toward fossil fuels, emissions could remain higher for longer even as demand rises. That could make it harder for the U.S. to cut pollution at the pace needed to meet climate targets, especially if gas plants crowd out cleaner resources that might otherwise have entered the system.

There is also a broader economic concern. A grid that depends more heavily on fossil fuels may be more exposed to fuel price shocks and less able to stabilize bills over time. By contrast, once renewables are built, their operating costs are comparatively low and less dependent on volatile commodity markets.

What should policymakers and utilities do next?

Policymakers face a narrowing window to shape how the AI era affects the power sector. The report points to the need for decisions that prioritize affordability, reliability and emissions at the same time rather than treating them as separate goals.

That could mean faster permitting for transmission, stronger support for clean generation, more transparent demand forecasting and market rules that reward flexibility rather than just the quickest fossil-fuel response. It also means recognizing that some of the fastest and cheapest new power available is still renewable.

Utilities, meanwhile, will need to balance near-term reliability with long-term system costs. They are under pressure to supply new loads quickly, but every choice they make now can shape customer bills and grid emissions well into the 2040s.

The bigger picture: a power system under stress

What makes this moment consequential is not only the rise in demand, but the policy environment around it. In a more neutral regulatory climate, the growth of AI data centers might have accelerated a cleaner grid buildout. Instead, the report argues, federal policy is nudging the market toward gas just as cheap renewables and high electricity demand could have created a natural opening for cleaner expansion.

That tension defines the current U.S. energy debate. The country can add more power and still pursue a cleaner system, but only if the policies and incentives align with that goal. Right now, the report says, they do not.

The next few years will show whether the fossil fuel rebound becomes a lasting feature of the AI boom or just a temporary reaction to rapid demand growth. For now, the data show a clear shift: more gas projects, more pressure on the grid and a tougher road for the renewables that had been gaining momentum for years.

What happens next will matter far beyond data centers. It will affect electricity prices, public health, climate pollution and the structure of the U.S. energy system for decades.

Key facts at a glance

• Report source: Environmental Defense Fund and Atlas Public Policy
• Data basis: U.S. Energy Information Administration figures
• Main trend: More planned fossil fuel infrastructure and slower renewable momentum
• Major driver: Rising electricity demand from data centers, factories and EVs
• Policy backdrop: Trump administration actions favoring fossil fuels and constraining renewables