With the rapid buildout of data centers across the country, states must have strong policies to mitigate their impacts to the climate and local communities. While these resource-intensive facilities may support economic development, they also pose significant challenges for states related to ensuring energy affordability, decreasing fossil fuel dependency, bolstering grid reliability, and conserving local land and water resources. It’s important for state policymakers and advocates to consider how they can ensure the rise in data centers fits within their larger energy and economic goals.
We hosted a listening session to understand your questions, concerns, and ideas around data centers and state climate policy. Jacqueline Adams, Senior Policy and Research Associate at Climate XChange, provided an introductory presentation to set the stage for what state-level data center policy looks like right now, especially as it relates to mitigating climate, energy, and environmental concerns.
Data Center Growth and Incentives Today
With over 3,700 data centers in the U.S. today, and accelerated data center growth projections for the coming years, state policymakers and advocates need to be well-prepared to ensure that policies curtail the potential impacts of these facilities on environmental resources, local communities, energy affordability and reliability, and more.
Most states already have existing tax incentives to attract data centers. In 2025 legislative sessions, we’ve seen 113 bills across 30 states addressing data centers, whether incentivizing or regulating their deployment and operation. Virginia has, by far, the highest number of bills introduced this session (28) — equivalent to the sum of all bills introduced in the next four leading states: Minnesota, Texas, California, and Maryland — reflecting Virginia’s status as both the state with the most data centers of any in the country, (over 575) and the state with the highest expected data center load growth through 2030.
Data Centers and State Climate Policy
For our legislative survey and analysis, we organized those 113 state bills related to data centers and climate into nine issue areas:
- Employment, tax, and economic justice
- Grid planning and reliability
- Water use and other local environmental burdens
- Rates and energy affordability
- Data center transparency and accountability
- Energy efficiency requirements
- Co-siting requirements for renewables, batteries, and other on-site generation and storage
- Green energy procurement for data centers
- Data center microgrids for critical services
Below, we’ll explore how we defined these categories and showcase examples of how states are approaching regulation around these themes in 2025 sessions. Listed bills are not meant to serve as best practice, necessarily, but rather to highlight different ways states are tackling these issues.
Employment, tax, and economic justice (47 bills)
Data centers are often offered generous tax incentives to locate in a particular state, but they have relatively negligible local employment benefits. Bills in this issue area seek to incentivize local community benefits, align operations with state-level clean energy goals, or direct tax data center revenue to pay for programs that might stimulate local economies.
- Example: Texas H.B. 4908 (introduced): Taxes data center revenue, distributes it into the Texas Prosperity Payout Fund, and distributes those funds to Texas residents.
- Example: Maryland S.B. 0316 (failed): Establishes that 75 percent of tax revenue generated from sales and use tax on electricity generated for data centers will be put in an escrow account, which manages solar renewable energy credits.
Grid planning and reliability (29 bills)
The next most common bucket of state legislation addresses impacts to the power grid, typically through incentives or requirements for data centers to minimize their strain on the grid and related infrastructure. Some bills aim to incentivize or require data centers to provide grid services like energy storage or generation, to help maintain reliability during periods of grid strain.
- Example: Illinois H.B. 3758/S.B. 2497 (introduced) – Targets 15 GW of state energy storage and establishes a virtual power plant program to create jobs and reduce energy prices, laying the groundwork for high energy demand data centers.
- Example: Colorado SB25-280 (failed) – Offers two tiers of certification that data centers can meet to gain tax incentives.
- Base Certification for 100 percent sales and use tax exemption: requires capital investment, job creation, grid support capabilities, energy efficiency certification, water efficiency standards, sourcing 50% of energy from renewables, and implementing energy storage.
- Enhancement Certification (after Base Certification is met) for an income tax credit of 10 percent of the value of the grid investment: requires a $10 million investment in grid enhancements, and investment in workforce development/community benefit programs.
Water use and other local environmental burdens (26 bills)
Data centers have major impacts on local resources and communities. They require large amounts of water to cool their equipment, can cause increased noise and air pollution, and often impact other natural and cultural resources in the area. Bills in this category might require data centers to measure, disclose, or mitigate these local burdens, or require zoning amendments or additional assessments to protect at-risk communities.
- Example: Arizona H.B. 2893 (introduced) – Reduces the qualifying period for data center tax relief; the additional revenue is directed to water conservation efforts and agricultural irrigation efficiency.
- Example: Maryland H.B. 1484/S.B. 0978 (failed) – Requires public participation and environmental impact analysis for data centers that may negatively impact the environment or public health, with additional burden reporting required for communities in at risk areas; grants the state the authority to deny permits if such impacts are deemed too large; deposits permit fees into a cumulative impacts mitigation fund.
Rates and energy affordability (23 bills)
As data centers become the leading source of load growth, their impacts on electricity demand, and subsequently energy affordability, are a large concern. Legislation in this category often seeks to establish protections to ensure that data centers pay the full cost of their own added demand rather than pass costs on to ratepayers.
- Example: Georgia S.B. 34 (left committee) – Prohibits costs from increased fuel requirements, generation, and transmission of data centers to be included in rates, ensuring financial burden is not passed on to customers.
- Example: North Carolina H1002 (introduced) – Prohibits passing data center-related energy costs to ratepayers.
Data center transparency and accountability (21 bills)
Without clear and mandated reporting, it’s hard to understand and mitigate the impacts that data centers impose on state energy systems, economies, and environments. These bills might require an extra layer of accountability for data centers to report their energy and water use, grid technologies being deployed, or other resources and technology used.
- Example: New York S.6394 (left committee) – Requires data centers to report projected energy and water usage, emissions, labor, and potential environmental impacts, and requires public hearings in the host community; all changes to environmental or efficiency planning must be reported, and annual reports must disclose efforts made to reduce fossil fuel and water usage; establishes energy efficiency goals for data centers, which must align with the New York State Climate Leadership and Community Protection Act (CLCPA).
- Example: Georgia H.B. 528 (introduced) – Requires high resource use facilities to report energy consumption metrics, sources, and waste heat production, as well as water usage, sources, and discharge details prior to applying for tax incentives or getting approvals to construct or operate such a facility; facilities must also report community impacts including tax contributions, air quality permits, and noise levels.
Energy efficiency requirements (20 bills)
As data centers are significant consumers of electricity, many bills aim to require that data centers meet specific energy efficiency requirements, typically related to specific mechanical or electrical elements of data center infrastructure.
- Example: Texas S.B. 2888 (introduced): Adds energy conservation and efficiency measures to tax exemption requirements for data centers, which might include installing liquid cooling systems or using ENERGY-STAR-certified servers.
- Example: New Jersey A.5462 (introduced)/S.4307 (left committee): Requires electric public utilities to develop and apply a special tariff for data centers so costs are not passed on to customers; the tariff will also encourage data centers to adopt energy-efficient practices, including technologies that capture and utilize the heat they produce.
Co-siting requirements for renewables, batteries, and other on-site generation and storage (18 bills)
Some bills seek to require data centers to have certain generation or storage assets on-site to serve their own electricity needs. Bills often set requirements for batteries, waste heat, and backup generators, though some states are addressing on-site renewables, nuclear, and geothermal by first mandating studies. In some cases, these assets may be used to support the grid during high demand or emergencies.
- Example: California A.B. 1095 (left committee): Establishes the Climate Catalyst Revolving loan program to support projects that capture and convert waste heat from data centers; data centers generating waste heat energy will receive Renewable Energy Credits (RECs), if specific conditions are met.
- Example: Virginia H.B. 2578 (failed): Data centers qualify for sales and use tax exemptions if they procure a certain percent of their annual load from renewables and can prove substantial investment in environmental management and energy efficiency; backup generators that emit carbon dioxide will be phased out by 2027, and the state will study backup generators that do not use fossil fuels and waste heat implementation.
Green energy procurement for data centers (11 bills)
Although not yet popular in 2025 sessions, some states have proposed green energy procurement requirements, seeking to ensure that data centers purchase renewable power to cover all or some of their load. This may be accomplished through a utility tariff, the purchase of renewable energy credits, or a power purchase agreement.
- Example: New York S.6394 (left committee): Prohibits incentives for fossil fuel power purchase agreements; mandates that by 2040, all energy used by data centers is sourced from renewable energy through such power purchase agreements.
- Example: Minnesota H.F. 2928 (introduced): Requires that data centers procure 65 percent of their power from renewable sources before 2030, and 100 percent after; each individual data center will file plans with the public utility commission to attain these targets, and compliance will be assessed on an hourly level, ensuring that data centers are actually meeting their 24-hour energy demands with renewable energy hour-by-hour, not just credits generated the next day.
Data center microgrids for critical services (2 bills)
Microgrid legislation for data centers is an emerging trend, with only West Virginia exploring this theme so far. Legislation in this bucket seeks to have data centers produce and use their own power through microgrids, which would run independently or in conjunction with the grid, and could support critical infrastructure in neighboring communities during an emergency.
- Example: West Virginia H.B. 2014 (enacted): Exempts data centers from certain zoning ordinances and allows them to produce and use their own power using microgrids; special utility rates are allowed for microgrid customers, and taxes from data centers are used to enhance grid security and reliability.
Conclusion & Takeaways
The rapid expansion of data centers is a major driver of load growth with substantial impacts to local environments and communities, and their buildout is already incentivized by most states. Left unchecked, data center development may jeopardize state climate and energy goals, but states have policy options that could mitigate their impacts.
Many states have introduced legislation tackling different combinations of the above nine issue areas across themes of local resource conservation, economic justice, energy efficiency, grid reliability, and more. States are also exploring different types of policy levers, utilizing tax incentives, funding allocations, technology incentives, reporting requirements, direct regulations, and more to meet their economic and environmental needs. It’s up to state policymakers and advocates to design and enact smart, strong, and equitable data center regulations to protect our communities and the climate — and we have no time to waste.
