| STATE POLICY TOOLKITS FOR DATA CENTER REGULATION | Water Impacts |
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About This Toolkit
As data centers spread across the country, they are imposing striking costs on utilities, ratepayers, water authorities, and communities. State governments are looking for new tools to contain the impacts of massive data center spread, including on public health and the climate. This toolkit draws from many examples in 2025 state legislative sessions, during which the Climate XChange team reviewed over 140 bills addressing data centers across 34 states, as well as emerging examples from 2026.
This resource represents one of five installments in Climate XChange’s State Policy Toolkits for Data Center Regulation, which will be released throughout 2026. This document tackles the tools that states can use to address and mitigate the impacts that data centers have on water resources. It should be considered alongside other toolkits describing state policies addressing data center impacts on electricity affordability and reliability, greenhouse gas emissions, tax and employment justice, and transparency concerns. Look out for the complete Toolkit Series at Climate XChange’s Resources for Regulating Data Centers Page.
The Issue
Data centers can require an extraordinary amount of water to cool their operations, which threatens to diminish local water supply, overwhelm wastewater treatment facilities, pollute waterways with toxic discharge, and raise water rates for other customers. About two-thirds of data centers built since 2022 are in areas with existing high levels of water stress, making their water use a key issue for states and localities. This rising water usage exacerbates existing water supply and quality crises across the country, with many regions experiencing drought, coastal flooding, and waterway contamination, alongside aging, corrosion-prone pipes in use in every state.
The Toolkit
States have direct jurisdiction over many aspects of water use and rates, and to a lesser extent, water quality. States should mandate water protections through the provision and renewal of water use permits and business licenses, or as a last resort, tax and permitting incentives for data centers. This toolkit primarily focuses on state policies to address data centers’ on-site water use, highlighting legislative tools that aim to protect local watersheds, promote water efficiency, inform the state and public about facilities’ water use, and require that data centers pay their fair share for water service and infrastructure.
Legislative Highlights
- West Virginia HB 4832 (proposed, 2026): Protects water resources and rates, by limiting data centers’ usage if causing adverse impacts to supply, and requiring data centers to pay for all water utility costs incurred.
- Maryland SB 978 (failed, 2025): Protects water resources and empowers communities, by conditioning data center permits on a finding of no adverse environmental impacts, and involving communities in reviewing those impacts and developing an impact mitigation fund agreement.
- Illinois SB 2181 (proposed, 2026): Establishes transparency and public notification by requiring disclosure on water usage by data centers, public reporting of that data, and state analysis and recommendations to mitigate impacts.
- Illinois SB 4016/HB 5513 (proposed, 2026): Funds water conservation and utility costs by requiring data centers to pay for water infrastructure costs and pollutant protection.
Further Reading
For more information on data centers’ water impacts and policy tools to address them, explore the below resources from other organizations:
- AI Now Institute – North Star Data Center Policy Toolkit
- Climate Mayors – Data Centers and the Climate Landscape: An Actionable Resource for US Mayors
- Houston Advanced Research Center – Thirsty Data and the Lone Star State: The Impact of Data Center Growth on Texas’ Water Supply
- Multistate – State Data Center Water Usage Legislation Gains Momentum
- We Build Progress – How States Are Approaching the Data Center Boom, including their database of state and local data center policies
Note: With the rapid buildout of data centers across the country, states must have strong policies to prevent their negative impacts on the environment, climate, energy systems, and local communities. Climate XChange’s policy toolkits, educational programming, and technical assistance are solely focused on addressing these impacts. Our organization is not involved in advocacy, nor does it have the expertise to assess the broader societal and economic effects of widespread artificial intelligence adoption in the United States.