The Year Ahead: Entering a Rocky Energy Efficiency Landscape

A challenging federal policy environment will threaten efficiency gains, but opportunities for progress remain.

In 2025, energy efficiency will face pivotal challenges and opportunities as rising electricity demand reshapes the energy landscape and a new president and Congress reshape the federal political landscape. The election outcome will challenge federal actions, while state and local leaders, along with forward-thinking businesses, may step in to address gaps.

This post explores these landscape-shaping events. Subsequent posts in this series will focus on particular sectors of our economy, such as industry and transportation. At ACEEE, our focus remains on ensuring energy efficiency drives solutions for meeting major energy challenges, including load growth as well as energy affordability and equity, grid reliability, climate change, and U.S. competitiveness.

Electric load growth is here, and hitting some regions hard

U.S. electricity use was essentially stable from 2018 to 2023, but in 2024 power use grew about 1.9%. Bigger increases are on the horizon, driven by explosive growth in data centers, new and expanded industrial facilities, as well as electrification of vehicles and space-, water-, and process-heating. Grid Strategies estimates that power demand will increase 15.8% nationally over the next five years, with even faster growth in some regions. This growth is projected to add 128 GW of demand over this period (for perspective, a large nuclear power plant is about 1 GW).

Part of this expanded demand can be met more rapidly and with cost savings by quickly ramping up programs to spur efficiency improvements in factories, homes, and buildings, reducing the amount of expensive new generation that will be needed. Utilities and state utility commissions will make key decisions on expanding efficiency efforts. For instance, the Tennessee Valley Authority is planning a significant efficiency program expansion, and ACEEE will encourage others to follow suit to address rapid load growth.

Artificial intelligence will increase strain but also bring solutions

Artificial intelligence (AI) contributes to rising power demand but also holds the potential to optimize systems and reduce energy use. Berkeley Lab researchers estimate that AI-driven efficiency could reduce energy consumption and carbon emissions by 8–19% by 2050. We have noted many opportunities to make AI and other data centers more efficient and reduce their power use during peak periods. In 2025, we plan to further explore the efficiency and load management opportunities for AI.

The federal policy landscape features significant threats

President-elect Trump is focused on increasing energy production. Trump and congressional leaders have suggested they want to cut climate funding that was in the Inflation Reduction Act (IRA) to help pay for extending the 2017 Trump tax cuts and other Republican priorities, as well as slashing other federal programs and weakening regulations. In this environment, we will pivot to defend key energy efficiency priorities.

In the fall, Speaker of the House Johnson noted the need to take a “blowtorch” to the IRA but also said, “You’ve got to use a scalpel and not a sledgehammer because there’s a few provisions in there that have helped overall.” As Congress decides which programs to keep and which to cut, ACEEE will seek to defend investments such as the tax credit for new energy-efficient homes (section 45L of the tax code) and the credit for efficiency upgrades to existing homes (section 25C). The number of qualifying new homes each year has more than doubled since reforms to 45L took effect in 2023. 25C has aided insulation, heat pump and heat pump water heater sales, helping reduce home energy costs.

We’re also monitoring many of the grant programs funded under the IRA; it appears that most of the funds will be obligated (under contracts) before Inauguration Day, but some may not. For example, the Home Energy Rebate program provides funds to states to operate home energy retrofit programs, with a particular focus on low- and moderate-income households. All but 10 states have submitted applications. These 10 are most at risk of losing their funds, but since all but one have Republican governors and legislatures, it’s unclear whether the Trump administration will let these states proceed with their programs or seek to reallocate these funds.

President-elect Trump has repeatedly promised to cut energy costs in half. The administration will have more success cutting energy bills if it uses efficiency efforts to reduce energy waste as a complement to efforts to reduce energy prices. Enabling the Home Energy Rebate program to operate in all states and preserving the efficiency tax credits would help meet Trump’s energy affordability goals.

Despite the federal policy threats, there may also be opportunities for bipartisan progress. These could include targeted energy efficiency policies that enhance industrial competitiveness and the workforce, increase the supply of affordable housing, assist farms to reduce their energy costs, and improve our transportation system.

State and local policy opportunities abound

Overall, federal energy efficiency efforts are likely to decline over the next four years as the Trump administration seeks to reduce expenditures and regulations. In some cases, states and localities will step in to enhance their own efforts. States take the lead on electric utility regulation, distribution-grid planning, and utility energy efficiency programs. We will urge states to ramp up efficiency efforts to help meet growing electric loads.

States and localities take the lead on building codes, and our National Energy Codes Collaborative will continue to coordinate and assist in these efforts. We have also assisted states for many years in setting equipment efficiency standards through the Appliance Standards Awareness Project; we plan to step up these efforts. We will also increase our work with states on industrial efficiency programs, transportation planning, and promoting and preparing for increased use of efficient electric vehicles.

Businesses will have an important role

Businesses remain key players in providing energy efficiency goods and services as well as cutting their own energy use. Leading firms are advancing these efforts to innovate, reduce costs, and meet corporate sustainability goals. Despite federal shifts, corporate efficiency initiatives are likely to stay strong, driven by shareholder expectations and international market demands. ACEEE will encourage expanded corporate efforts, such as in the industrial and real estate sectors.

ACEEE will help drive energy efficiency progress

The year ahead presents both uncertainty and promise for energy efficiency. While challenges from rising energy demand and shifting federal priorities loom large, the opportunities to leverage efficiency as a solution are equally compelling. By championing efficiency across all sectors, we can mitigate the risk of economic stagnation and bolster economic competitiveness, improve affordability, and help mitigate climate change. ACEEE is committed to ensuring that energy efficiency remains a cornerstone of a sustainable energy future.