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Abstract Drought, a potent natural climatic phenomenon, significantly challenges hydropower systems, bearing adverse consequences for economies, societies, and the environment. This study delves into the profound impact of drought on hydropower generation (HG) in the United States, revealing a robust correlation between hydrologic drought and hydroelectricity generation. Our analysis of the period from 2003 to 2020 for the Contiguous United States (CONUS) indicates that drought events led to a considerable decline in hydroelectricity generation, amounting to approximately 300 million MWh, and resulting in an estimated loss of $28 billion to the sector. Moreover, our findings highlight the adverse environmental effect of drought-induced HG reductions, which are often compensated by increased reliance on natural gas usage, which led to substantial emissions of carbon dioxide (CO₂), sulfur dioxide (SO₂), and nitrogen oxide (NO_X), totaling 161 700 kilotons, 1199 tons, and 181 977 tons, respectively. In addition to these findings, we assess the state-level vulnerability of hydropower to drought, identifying Washington and California as the most vulnerable states, while Nevada exhibits the least vulnerability. Overall, this study enhances understanding of the multifaceted effects of drought on hydropower, which can assist in informing policies and practices related to drought management and energy production.