States Propose Data Center Energy Guardrails as Demand Soars (1)

Proposals to regulate data centers’ energy use and environmental impacts are popping up as states balance high hopes for the fast-growing industry with concerns about electric reliability, consumer costs, and natural resource depletion.

Legislators in at least eight states have filed or plan to file bills setting eco-conscious guardrails on the industry, which is expected to consume up to 12% of total US electricity by 2028, according to a December report from the Department of Energy.

The bills are a response to the sheer volume of data centers—which are increasingly geared toward serving artificial intelligence—under development across the country and their soaring energy needs, said Jackson Morris, director of state power sector policy at the Natural Resources Defense Council.

“The problem has snuck up on everybody at a speed and scale that nobody anticipated,” and more constituents are raising concerns with elected officials, he said.

Data centers have been around for decades to house servers and other computing equipment. But data centers used to run AI require far more energy than other types, and officials worry that residential consumers are subsidizing tech giants’ energy needs.

“People are starting to see the very real ramifications that come with the AI revolution,” said Charles Harper, power sector senior policy lead at environmental group Evergreen Action.

National interest in data center development is so high that President Joe Biden directed agencies to lease federal land for AI-specific facilities in a January executive order intended to build out more data centers quickly and extensively.

State officials are also trying to entice the industry.

Virginia Gov. Glenn Youngkin (R) and New York Gov. Kathy Hochul (D) have already this year touted data center development as a key economic driver in their annual addresses outlining policy goals. Dozens of states have also recently created tax incentives for data center companies, driving more growth.

“All these governors are just, like, drunk on the data center Kool-Aid,” Morris said. But “if they don’t include guardrails, it could end up begin a big political liability.”

Virginia

With hundreds of data centers standing or under development, Virginia is known as the data center capital of the world. On Jan. 14, state legislators introduced a bipartisan package of bills aimed at protecting the environment and consumers.

Two of the bills, HB 2101 and HB 2035, would study data center energy usage and costs. The first would direct state regulators to investigate whether consumers are paying for data centers’ energy costs, then take steps to even the playing field if so. The second would require facility owners to report water and energy usage quarterly starting in May 2026.

Another, HB 2578, would require data center operators to purchase more clean energy starting in 2030 and use backup generators that meet specific emission standards by 2027. Under HB 2027, certain facilities would need a certificate from state regulators finding no negative impacts on electric bills, reliability, water supply, or grid capacity, to operate.

The package comes about a month after Virginia’s Joint Legislative Audit and Review Commission released a December report outlining concerns with high energy demand, disproportionate consumer costs, and water use.

“We look forward to engaging with legislators during the 2025 session to ensure continued responsible growth of this essential industry,” Josh Levi, president of the Data Center Coalition, said in an emailed statement.

Oregon

State Rep. Pam Marsh (D) plans to introduce legislation empowering Oregon’s Public Utility Commission to put data centers in a separate rate class—a group of similar customers classified together for ratemaking purposes—to ensure they pay their fair share. California state Sen. Steve Padilla (D) introduced a similar measure this month, saying innovation shouldn’t come at the expense of climate goals and higher costs for residential customers.

“Consumers more and more are going to start picking up the costs of these data centers,” Marsh said. “It’s all piling up on the residential ratepayers, and they’re screaming bloody murder.”

Another bill, SB 553, would require the Oregon Department of Energy to study data center power usage and report its findings by September 2026.

New York

State Sen. Kristen Gonzalez (D) said she plans to reintroduce the New York State Sustainable Data Centers Act, which was originally filed in December. The legislation would make data centers power their operations with 100% renewable energy by 2050, with interim renewables goals in 2030 and 2035.

The bill would also create reporting requirements to figure out the exact number of data centers in New York, as well as the amount of energy and water they consume. Its final section prevents fossil fuel incentives in power purchase agreements.

New York law mandates net-zero carbon emissions by 2050, and “anything that is adding demand on our grid is a threat to that goal,” Gonzalez said.

It’s not just New York: any state with a clean or renewable energy standard has “a lot to lose” from unchecked data center growth and the skyrocketing demand it breeds, Evergreen’s Harper said.

Other States

• California SB 58 would give a tax credit to data centers using at least 70% carbon-free energy and at least 50% behind-the-meter energy, as well as non-diesel fuel and recycled water for cooling.
• Connecticut HB 5076 would require AI data centers to use at least 50% renewable energy to power operations, find ways to conserve water, report annual energy consumption, and more.
• Maryland SB 116 would require the state to conduct an analysis of the likely environmental, energy, and economic impacts of data center development by September 2026.
• Arkansas SB 10 would allow state regulators to take action against crypto mining or blockchain operations if they threaten groundwater supply or grid reliability.