Here’s what new state budget requires of data centers
Virginia's new state budget includes new taxes and regulations for data centers, addressing concerns about their energy and water consumption, as well as noise pollution. A new tax on electricity use has been activated, and data centers will be required to minimize water usage and meet future noise level standards set by the Department of Environmental Quality. These measures represent the state's first major steps to mitigate the industry's environmental impact.
The Virginia General Assembly has finalized a new two-year state budget that enacts significant changes for the data center industry, the most energy-intensive sector in the Commonwealth. The budget introduces a new $.011 tax on every kilowatt hour of power consumed by data centers, with an annual collection cap of $600 million. This move is intended to generate revenue from the industry for its energy use, while a work group will further study the potential phase-out of the existing sales and use tax exemption.
The new legislation also mandates data centers to reduce their water consumption, particularly in cooling systems. The Department of Environmental Quality (DEQ) is tasked with identifying cooling water scarcity areas by July 2027. By 2032, data centers in these identified areas, or within the Eastern Virginia Groundwater Management Area, must demonstrate minimized water use by implementing water-efficient technologies. An amendment proposed by Governor Abigail Spanberger, which permits some evaporative cooling when combined with other efficient methods, was passed despite opposition from some lawmakers who argued it undermined water conservation efforts.
Additionally, the budget requires the DEQ to establish regulations for data center noise levels for the first time. By 2029, the department will determine and set industry-wide noise standards, which will become effective in 2030. Facilities found in violation of these future noise ordinances will face substantial daily fines. These comprehensive measures aim to address growing public and legislative concerns regarding the environmental footprint of Virginia's rapidly expanding data center sector.