Virginia Lawmakers and Communities Face Uphill Battle to Regulate Data Centers as Industry Booms

The state of Virginia might be among the world’s busiest markets for data centers, but lawmakers are increasingly grappling with the tradeoffs between economic growth and mounting environmental and community concerns. For the second year in a row, a bipartisan group of lawmakers is attempting to pass legislation that would give communities more oversight and say over the state’s sprawling data center industry.

Out of five bills introduced as part of this session’s package, four failed in committee (HB 2101, HB 2027, HB 2578, and HB 2035). Just one measure, HB 1601, cleared the House and now awaits action in the Senate. Opponents of these bills argue that these regulations would send the “wrong signals” to the industry, making it less likely for them to invest in Virginia.

Virginia’s economy benefits greatly from data centers, with Northern Virginia hosting “hundreds of digital infrastructure facilities.” According to a report by the state’s Joint Legislative and Audit Review Commission (JLARC), the industry is estimated to contribute “74,000 jobs, $5.5 billion in labor income, and $9.1 billion in GDP to Virginia’s economy annually.” However, the JLARC report also found that the success of this industry in the state is coming at a steep cost, estimating that under this unconstrained model of production, “average monthly energy consumption could reach more than 30,000 GWh by 2040, far outstripping supply.”

HB 1601, which passed the House, would require Virginia localities to get a report from electric providers outlining any new generating units or substations that would be used to power a new data center, referred to as a “high energy use facility” (HEUF), as well as the anticipated transmission voltage required to service it. The bill would also enable localities to require site assessments prior to approving a permit to build an HEUF. These site assessments could examine the effect of a HEUF on water, agricultural resources, parks, historic sites, and forestland.

Virginia is not the only state attempting to reconcile the economic benefits with the environmental impacts of the data center industry. In Washington state, Governor Bob Ferguson recently signed an executive order that establishes a working group “aimed at evaluating the impacts of data centers on Washington’s economy, tax revenue, energy use, and the environment.” The working group, embedded in the state’s Department of Revenue, would consist of representatives from government agencies, industry and utility stakeholders, environmental advocacy groups, and labor organizations.

In December 2024, the Center for Biological Diversity sued the city of Pittsburg, California, for “approving a development, including a massive data center, without considering and planning for its environmental effects, including greenhouse gas emissions, water usage, and harms to wildlife and surrounding wetlands.” The lawsuit contends that the city violated the California Environmental Quality Act when it approved the project.

Also in California, a legislative package was introduced in the Senate that aims to “protect ratepayers and incentivize green energy at California data centers.” The bills (SB57 and SB58) would protect residential energy ratepayers from the cost of building transmission lines for data centers that meet the state’s climate goals and provide tax credits to data centers using at least 70% carbon-free energy, respectively.

At the federal level, however, there is no indication the US government will place any environmental safeguards on the ever-expanding sector. On the contrary, the Trump administration has shown that it is eager to help tech companies develop more data centers to meet the demands of AI. Within days of returning to office, President Donald Trump announced “Stargate,” a $500 billion public-private joint venture aimed at accelerating the construction of AI-focused data centers. Backed by tech giants including Oracle, OpenAI, Softbank, MGX, Nvidia, Microsoft, and ARM, the initiative prioritizes rapid expansion, with Trump pledging to remove regulatory roadblocks.

“I’m gonna help a lot through emergency declarations because we have an emergency,” President Trump said at a press conference alongside OpenAI CEO Sam Altman. “[W]e have to get this stuff built…they have to produce a lot of electricity…make it possible for them to get this production done easily, at their own plants if they want."

OpenAI is reportedly looking across 16 states for places to expand its collection of data centers, with Bloomberg reporting that the Stargate’s first project will be constructed in Abilene, Texas. The state, the second-largest data center market (behind Virginia), is already struggling to keep up with the centers’ energy demands. Texas’ energy use is expected to double by 2030, with two-thirds of that growth driven by data centers.

As more states experience similar pressures, lawmakers may soon face difficult choices about how to best use precious energy and water resources. Such a tug-of-war between tech giants and the public is likely to compound “social inequity, further deepening the divide between those benefiting from AI and those disproportionately bearing its environmental and social costs​,” argues Cornelia C. Walther, a visiting scholar at Wharton and director of global alliance POZE.

For now, many Virginia lawmakers are working to navigate a fine line between protecting one of the state’s most important industries and confronting the environmental and social cost of its unchecked expansion.