This paper analyzes the role of public policy in the development of atmospheric fluidized bed combustion (AFBC) of coal for power generation in the United States. AFBC is at present a mature technology for power generation up to the size of 250 MW. The technology has mainly been used by cogenerators and independent power producers, rather than by utilities. The trends in development are explained by an interaction of supply and demand factors. On the supply side, the two key factors were the early government-sponsored demonstration plants and the subsequent introduction of advanced designs by the private sector. On the demand side, the key elements were the enactment of the Public Utilities Regulatory Policy Act and the characterization of AFBC as one of the best available technologies to comply with environmental standards. However, these combined with two other public policies-government funding of utility size demonstration units and the incentives provided by the Clean Air Act for clean coal repowering-have not been enough to spur a sustained demand for the technology in the utility sector. We conclude that investments in demonstration should be made only when there is likely to be a sustained market, either a private market that can take-off once there is proof-of-concept or a publicly created market to address the public goods aspects of energy production. Furthermore, given that assessments of future markets is made under uncertainty about the success of the technology in question as well as the evolution of competing technologies and costs of alternative fuels, it is important to have mid-stream reassessment of demonstration programs.