Introduction

Transmission expansion is widely acknowledged as a vital component of the energy transition, enabling regions to access lower-cost generation, enhance reliability, and manage rapidly increasing electricity demand. Despite its importance, transmission investment in the United States has consistently trailed the pace required to meet reliability goals, hindered by protracted timelines, cost allocation complexities, and regulatory obstacles in siting new lines. Transmission investment tax credits (ITCs) have been proposed as a strategic policy instrument to accelerate this build-out by directly reducing effective capital costs and incentivising further development.

This research brief provides an updated analysis of the system-wide impacts of transmission ITCs, a topic of renewed importance given the rapid, geographically concentrated load growth driven by data centres. This growth is placing additional strain on existing transmission and generation capacity. Using the GenX capacity expansion model, the researchers simulated the 2035 grid to evaluate system costs, emissions, and siting impacts under two distinct load growth scenarios: a high-growth scenario driven by significant data centre demand, and a low-growth scenario reflecting more historically typical patterns. Notably, this analysis excludes the Inflation Reduction Act (IRA) renewable tax credits, which were repealed following the passage of the One Big Beautiful Bill (OBBB) Act in July 2025.

Where do we see transmission being built with transmission ITCs?

The scale and geographic distribution of new transmission infrastructure vary significantly across the modelled scenarios. In the high-growth scenario, total new transmission capacity reaches 53.2 GW (combined intraregional and interregional), which is more than 40 times larger than the 1.3 GW seen in the low-growth scenario. This capacity is heavily concentrated within and around the Mid-Atlantic region, where the largest data centre load forecasts are located. Specifically, intraregional transmission in the Mid-Atlantic accounts for 40,101 MW under high growth.

Conversely, the low-growth scenario exhibits far sparser deployment. New builds are limited to a few specific corridors, including the Northwest-Southwest interregional line (0.5 GW) and the Midwest-Southeast line (0.7 GW). The absence of significant Mid-Atlantic builds in this scenario suggests that transmission ITCs have a minimal effect on regional generation adequacy when load growth does not create binding capacity constraints. This contrast highlights that ITCs are most effective when they address specific, acute constraints rather than providing a broad stimulus across the entire network.

What is the system cost impact of transmission ITCs?

The research finds that transmission ITCs lead to substantial system cost reductions in high-load growth environments. Annual system costs decrease by between $660 million and $1.17 billion under the high-growth scenario, while the federal government spends between $20 million and $552 million on the credits themselves. The benefits of the ITC appear to plateau at the 30% level, where further cost reductions are offset by increased subsidy expenditure. In the low-growth scenario, the impact is significantly more muted, with cost reductions of only $40 million to $50 million annually and spending ranging from $7 million to $40 million.

This asymmetry suggests that transmission ITCs unlock value primarily by relieving binding capacity and congestion constraints. In high-growth situations, ITC-induced investment acts as a substitute for more expensive generation capacity and dispatch, leading to significant fuel and investment savings. In contrast, low-growth systems have more inherent slack, meaning additional transmission investment largely redistributes costs between categories—such as decreasing investment costs while increasing interregional and variable operation and maintenance (O&M) costs—rather than lowering the total system cost.

What is the emissions impact of transmission ITCs?

The impact of transmission ITCs on emissions is highly sensitive to the rate of load growth. In the high-growth scenario, low ITC levels (5%–15%) result in emissions that are largely unchanged or slightly higher than the baseline. However, at ITC levels of 20% and above, emissions fall, reaching a maximum reduction of 12.7 million metric tons at a 40% credit level. This occurs even as cost savings plateau, indicating that higher subsidy levels can yield meaningful environmental benefits beyond economic efficiency.

The regional decomposition of these emissions shows significant heterogeneity. Under high growth, regions like Texas and the Southeast see the largest declines due to a reduction in natural gas generation. However, the Mid-Atlantic experiences an emissions increase, as additional transmission allows the region to rely more on natural gas to meet its high demand. In the low-growth scenario, the same subsidy can actually increase modest system-wide emissions by up to 6.4 million metric tons annually. This occurs because the induced transmission investment reallocates generation toward cheaper but more emissions-intensive sources, such as coal in the Southeast, highlighting a potential conflict between cost-saving and decarbonisation goals in low-growth contexts.

Conclusion

The research concludes that transmission ITCs are a powerful tool for concentrating investment in regions facing acute capacity constraints, particularly when paired with high load growth. While they successfully reduce annual system costs by up to $1.17 billion in these scenarios, their impact on emissions is variable. Under high growth, they can shift dispatch away from higher-emitting regions, reducing emissions by up to 12.7 million metric tons. However, in low-growth scenarios, the reallocation of generation toward cheaper, dirtier sources can lead to a modest increase in emissions. This underscores the importance of coordinating transmission subsidies with broader generation-side incentives to ensure that economic benefits align with climate objectives.