Virginia's legislature has abandoned efforts to require data centers to use clean energy, despite months of debate and overwhelming public support for environmental protections. Instead of mandating renewable power standards, lawmakers created a new energy consumption tax capped at $600 million annually, roughly one-third the value of the existing tax exemption the industry receives.

Why Did Virginia's Data Center Clean Energy Push Fail?

The story began with promise in February when environmental advocates and concerned citizens pushed for meaningful change. William Ward, a 53-year-old Virginia resident, attended a rally organized by the Virginia League of Conservation Voters in Petersburg where he learned about the industry's strain on the power grid and the $1.9 billion in sales and use tax exemptions data centers received in 2025. "It affects the common people," Ward said. "We have to pay, they don't have to pay. I understand we need data centers, but why here? They need to pay their fair share."

The House of Delegates initially took the lead by proposing several clean energy requirements for data centers seeking the exemption. The Senate went further, proposing to sunset the exemption by the end of 2026, nine years earlier than its current 2035 expiration date. But as the June 29 budget deadline approached, both chambers retreated from these positions.

The final budget, approved just two days before the deadline, made no changes to the core tax exemption and added no clean energy requirements. Instead, it created a new tax on data center energy consumption, capped at $600 million annually. The legislation also directed a commission to deliver a report by December 15 on data center impacts and recommended changes, despite a similar study being published less than two years earlier.

What Did Lawmakers Actually Pass Instead?

The approved budget includes several provisions that environmental advocates say fall short of meaningful accountability. The measures include language requiring reporting on electricity, water, and diesel backup generators, though many of these efforts are already underway. Additional language establishes rules for water-dependent cooling technology in regions with water shortages, but it lacks specific standards and allows for less conservative evaporation cooling.

The budget also includes a provision addressing potential economic impacts when data centers connect to Dominion Energy's grid in historically economically disadvantaged communities. These areas often lack resources to oppose projects and have long dealt with the harms of industrial development.

Lee Francis, chief program and communications officer at the Virginia League of Conservation Voters, expressed disappointment with the outcome. "What just passed didn't make anybody's life better," Francis stated. "What [lawmakers] did was really went back on the original intent, which was to hold the industry accountable to strong environmental standards, and that's no longer on the table."

How to Understand the Stakes for Virginia Residents

• Rising Electricity Bills: A 2024 state study found that generation and transmission costs could raise monthly bills by $37 by 2040. Dominion Energy's long-term plan projects residential bills could increase from $142.77 in 2024 to $255 by the end of 2035 and $268 by 2045 if the utility builds out all necessary gas, nuclear, and renewable technologies to meet data center demand.
• Public Support for Protections: A January poll from Christopher Newport University's Wason Center found that 63 percent of Virginians supported site assessments for data centers to evaluate impacts on water, electric grid, emissions, and farming, among other protections.
• Industry Economic Arguments: The Data Center Coalition warned that changes to the exemption would hurt the "4,000 jobs, $5.5 billion in labor income, and $9.1 billion in gross domestic product" that data centers contribute annually to Virginia's economy.

Virginia holds the title of "data center capital of the world," hosting more of these warehouse-like facilities than any other state or country outside the United States. The industry processes and stores the data powering the internet and artificial intelligence systems. The tax exemption, created in 2008 to spur economic activity, waives a 4.3 to 7 percent levy when companies purchase server and backup generator equipment. About 90 percent of the industry uses this exemption.

The growth of data centers has prompted Dominion to propose its first new gas plant in years, which regulators approved in 2025. Additional gas plants and fossil fuel buildouts could follow if demand continues to surge.

Democrats gained control of Virginia's state government in November partly by promising to rein in data center growth. However, during the actual legislative process, industry officials and economic development advocates warned that any changes to the exemption would jeopardize jobs and investment. The Data Center Coalition's president, Josh Levi, stated in a message days before budget approval: "The message to businesses in all industries is clear, Virginia is no longer a reliable partner."

Governor Abigail Spanberger sided with the House approach, wanting to honor existing deals while still stating her desire for data centers to pay their "fair share." A spokesperson for Spanberger said she was "proud" to approve the data center energy consumption tax and pointed to other legislation on data centers that passed, including a requirement for cleaner diesel backup generators, though the law lost its requirements for clean energy storage. Another bill incentivizes data centers to fund zero-carbon energy sources, but none of the bills place clean energy requirements on the facilities.

Jay Ford, Virginia policy manager for the Chesapeake Bay Foundation, criticized the outcome as a delay tactic. "Very rarely, when there is a delay in action with a major industry, do you get a better answer on the other side," Ford observed.

Environmental groups have called for a moratorium on the industry while the government crafts comprehensive environmental protections for data centers. However, lawmakers instead delayed any meaningful changes to the exemption, with promises to revisit the issue in 2027. Inside Climate News asked whether the exemption would be revised to include clean energy requirements next year, but received no guarantees from state officials.