EDITOR’S NOTE: This story is part of a special State Affairs series highlighting energy policy dominating state legislative action this year. See the full list of stories here.

Climate-conscious state lawmakers have proposed policies to keep states on track to meet their environmental goals, as rising electricity demand spurred by data center development is threatening to hamstring efforts to rein in greenhouse-gas emissions. 

Those proposals include requiring or incentivizing data centers to provide their own clean power; data center development moratoriums; establishing virtual power plants; ramping up rooftop solar; and establishing cap-and-trade programs.

Experts say the demand for electricity to power the surge in data centers is projected to be so great that even if states and utilities put more clean power on the grid, emission-heavy power sources such as coal and natural gas likely must be kept online to ensure reliability and prevent brownouts and blackouts.

“The data center industry operates on timelines that are just vastly different than the utility industry,” said Brendan Pierpont, director of electricity at Energy Innovation. “I think the expectations between these two industries are really mismatched, and that’s creating a lot of pressure on utilities and on the states that have these goals.”

Electricity usage is forecast to grow by an average of 5.7% per year over the next five years. Data centers are the largest driver of demand and energy growth, accounting for roughly 40% to 55% of demand growth in utility load forecasts, depending on what actually gets built, according to Grid Strategies, a consulting firm. 

Data centers are specialized buildings that house networking and other computer equipment needed to support artificial intelligence, cloud computing, financial transactions, video streaming and numerous other essential parts of the economy. They can use as much electricity as a city and hundreds of thousands of gallons of water to cool their systems, depending on the size of the facility.

The One Big Beautiful Bill Act has cranked up data center development thanks to a provision allowing companies to take immediate deductions for certain capital investments — including the equipment housed in data centers — rather than spreading those write-offs over several years.

States must balance climate goals against the economic benefits of hosting data centers, though some critics say the costs in lost revenue outweigh the benefits. According to McKinsey, “States that can effectively plan, manage, and mitigate the risks of data center growth stand to unlock millions, perhaps even billions, of dollars in direct and indirect growth.”

Currently, 15 states — most of which are run by Democrats — have enacted legislation requiring that all energy needs be met by 100% clean or renewable energy by a certain date. Ten states, including five with 100% clean energy laws, also must reach economy-wide climate goals by a certain date under current laws. Those include California, Colorado, Illinois, Michigan and New York.

California, Illinois, and New York are among the roughly half a dozen states where legislation has been introduced to require or incentivize data center developers to provide or procure their own clean or renewable power. 

In Illinois, Democratic Sen. Ram Villivalam unveiled his far-reaching measure, known as the Power Act, at a press conference in February. He underscored that the bill includes a Bring Your Own New Clean Capacity and Energy provision, “ensuring data centers power their operations with new locally deliverable renewable energy and battery storage.” 

The measure would also require data centers to pay into a fund to support low-income energy assistance, avoid power cutoffs and boost home weatherization programs. They would also have to disclose water usage. A cumulative assessment would have to be done before being sited near low-income communities.

Opponents of the bill, including the Data Center Coalition and the Illinois Manufacturers Association, said it would hurt Illinois by prompting developers to go to other states. The Data Center Coalition is backed by companies including Amazon, Google, Microsoft and Meta.

Jen Walling, head of the Illinois Environmental Council, countered that data centers would continue to have a presence in the state thanks to its access to water and power. 

“They are looking here, and they’ll still look here, even if we have regulations in place,” Walling said at the press conference. 

Lawmakers in at least six states, including Georgia, Michigan and Oklahoma, have introduced legislation to pause data center development over concerns that a sudden surge in data centers could hurt consumers, the environment and the grid.

In Michigan, a resolution was introduced calling for a pause in construction and reviews by state agencies on the fiscal, utility and environmental effects of data centers. That includes assessments of electric load growth, water withdrawals and local infrastructure costs, as well as increased transparency and local government participation in siting decisions. 

“Absolutely unchecked data center growth makes it harder for us to hit our clean energy targets,” said Ben Poulson, state government affairs director for the Michigan League of Conservation Voters. “It doesn’t have to be that way, and it really is a policy choice.”

To that end, Pam Kiely, associate vice president for the U.S. region at the Environmental Defense Fund, said some states will look to cap-and-trade programs to protect the climate from greenhouse gas pollution associated with growing electricity demand from data centers.

Cap-and-trade programs typically involve capping emissions and establishing a market for selling allowances that businesses and others can buy to emit more than the cap permits. The funds raised tend to be used to mitigate and prevent damage related to climate change.

Kiely pointed to California revamping its programs last year, Virginia Democrats pushing to return the state to the Regional Greenhouse Gas Initiative, and U.S. Sen. Michael Bennet’s Colorado gubernatorial campaign platform including the establishment of a cap-and-trade program.

“We want increased demand in the power sector … because we know how to decarbonize that sector,” Kiely said. “But that also means we need a policy framework that’s capable of ensuring continued decarbonization even as demand grows.”