The goal of electric power deregulation in the United States is to lower electricity costs through market competition and greater consumer choice. This goal raises important questions: exactly what kinds of distributed generation (DG) should energy and environmental policy favor? What level of government is best-suited and/or most capable of governing DG? And what is the range of regulations that would most easily facilitate the competitive success of DG? In response, this article provides a comparative analysis of the electricity generation process with heat recovery created to assess the level of polluting emissions associated with a range of technologies and fuel types. Given the results of this analysis, we evaluate the governance structure responsible for regulating energy and environmental policy in the United States, and outline a regulatory approach that would ensure the use of the DG technologies and fuel sources that would be most beneficial to the environment and public health. Our analysis suggests that only the lowest emitting DG with significant waste heat recovery is even marginally competitive with combined cycle power production when air pollution issues are considered. Thus, we advocate technology-forcing in the specific form of manufacturer-based regulation, which would require, over time, the reduction of emissions from DG units at the point of manufacture as a means of ensuring greater air quality.