On July 16, 2026, EPA released a guidance memo stating that “islanded” power generation, or power generation that is not connected to the grid, was exempt from the Clean Air Act Acid Rain Program. In an accompanying press release, EPA asserted the new guidance “expands opportunities for companies to develop and operate islanded power generation facilities for data centers” and allows for artificial intelligence growth while protecting ratepayers.
The Acid Rain Program is responsible for significant emission reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx), the main precursors of acid rain. Both SO2 and NOx have also been shown to have severe human health effects, especially in vulnerable populations such as people with asthma and children. To reduce SO2, the Program creates a cap-and-trade system, under which each power plant must surrender allowances to cover its emissions. To reduce NOx, the program sets emission limits.
The new guidance stated islanded power generators could be exempt from these pollution control measures based on EPA’s interpretation of the Acid Rain Program regulations. The Acid Rain Program regulates “fossil fuel-fired combustion devices owned or operated by a utility that serves a generator that produces electricity for sale.” A utility is defined as “any person that sells electricity” and a “generator” is “a device that produces electricity and was or would have been required to be reported as a generating unit pursuant to the United States Department of Energy Form 860 (1990 edition).” This form defines electric utilities as “a corporation, person, agency, authority, or other legal entity or instrumentality that owns and/or operates facilities within the United States for the generation, transmissions, distribution, or sale of electric energy primarily for use by the public.” Based on these definitions, EPA stated that the Acid Rain Program “does not apply to power generation facilities that are not connected in any way to the larger electricity grid” because the Department of Energy form only covers energy generated for use by the public.
The guidance was not a formal rulemaking. The agency cautioned that the memo did “not provide any final determination concerning the applicability of the [Acid Rain Program] as to any specific source” and was not a final agency action. Because the Acid Rain Program is often integrated into state permitting, EPA directed power sources to consult with individual states which may have different acid rain pollution control requirements.