California Legislation Introduced Impacting Data Centers Amid Concerns Over Resource Use

As AI becomes ubiquitous, the environmental footprint of the data centers that support it is drawing attention from members of the California’s Legislature.

Legislators have taken a particular interest in establishing data center-specific policies. Three bills have been introduced targeting the expected rapid growth of data centers and their impacts on natural resources such as energy and water. The 2025 bill introduction deadline is still weeks away, so more bills may be coming.

Tech Industry Investments in AI and Data Center Expansion

A recent highlighted how major tech companies—such as Microsoft, Google, and Amazon—are significantly increasing their data center investments to expand capacity for future growth. State legislators in California are raising questions about the sustainability of such growth, particularly in regions of the state already grappling with limited energy and water resources.

Overview of the Bills:

(Padilla) – “Ratepayer and Technological Innovation Protection Act”

If enacted, this bill requires the California Public Utilities Commission (PUC) to establish a special electrical rate structure for data centers, with the stated goal to shield residential ratepayers and small businesses from increased electrical costs resulting from grid investments to support data center operations.

(Padilla) – “Data Center Green Tax Credit”

If enacted, this bill creates a tax credit for data centers that adopt sustainable practices, such as utilizing at least 70% carbon-free energy, sourcing 50% of their energy supply from behind-the-meter sources, avoiding diesel fuel, and employing water-efficient cooling systems.

(Bauer-Kahan) – “Data Centers: Energy Usage Reporting and Modeling”

If enacted, this bill mandates greater transparency in energy usage from AI developers and data center operators. Under the bill, AI models would have to disclose the amount of energy consumed during the training of large models. It would also require the PUC to determine whether costs and expenses arising from the construction of a new data center or a substantial alteration to an existing data center are just and reasonable.

Federal Context: Trump Administration’s $500 Billion AI Investment

Juxtaposed against California’s legislative activity is by the Trump administration highlighting a $500 billion 2024 joint venture aimed at promoting the United States’ leadership in AI. This initiative includes tech giants like Oracle, SoftBank, and OpenAI, with the goal of establishing cutting-edge computational infrastructure, supporting the development of generative AI technologies, and ensuring U.S. dominance in the global AI race. According to reports, the project includes significant investments in data center expansions and advanced AI training facilities across multiple states.

SB 57, SB 58, and AB 222 are expected to be considered by their houses respective energy policy committees in late March or early April.  

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