It’s time for Virginia to stop being the “wild west” for the data center industry and implement some common sense protections

By Freeda Cathcart, Founder of Indivisible Virginia

On Friday, June 12, the Virginia Data Center Economic & Environmental Review was published. It’s a comprehensive review of recent white papers, studies and reports that provides important information about the impact of out-of-date data centers in Virginia and how incentivizing data centers to implement new technologies would allow them to qualify for tax credits.

Concerns about a Memorandum of Understanding created under another administration, one that didn’t anticipate the harm Virginians and the environment are experiencing, shouldn’t hold the General Assembly back from taking the necessary action expeditiously to protect our Commonwealth. The business community understands reasonable adjustments to arrangements when they are based on solutions to risks that endanger them.

The House of Delegates proposed budget, that would eliminate the environmental standards data centers would need to meet in order to be able to qualify for the state’s sales and use tax, would be detrimental for business and the environment. There is no time to wait for further study when current studies and reports project Virginia’s economy and environment will continue to suffer unless immediate action is taken to mitigate the harm from out-dated data centers.

Since 2008, when Virginia implemented a tax credit incentive to attract data centers, the loss of potential revenue has increased by over 1000x (685x adjusted for inflation). With the goal of attracting the newly emerging data center industry, Virginia initiated the waiver for sales and use tax in 2008. This resulted in an estimated loss revenue of $1.5 million back in 2008. In addition to the attractive tax incentive, Virginia did not have regulations to protect the economy and environment from potential harm. This has contributed to a data center boom that has increased Virginia’s revenue loss to $1.9 billion. This resulted in only 1,610 new jobs for the year at a taxpayer cost of more than $1.2 million per job.

On top of the loss of revenue are the costs businesses and residents are bearing including the rise of electricity prices, air and water pollution. One study estimates the health care costs of air pollution from a data center will result in $53-$99 million per year in health-related damages, potentially up to $265-$495 million over five years. Communities and the agriculture industry are being harmed by the loss of enormous amounts of clean water.

Virginia’s major utility, Dominion Energy, is responding to the increased electricity demand created by out-of-date data centers by planning to build eight new gas plants. This is out of alignment with the U.S. signed pledge of the Global Methane Pledge. It also risks losing new businesses that have Scope 1, 2 & 3 targets from considering locating to Virginia and could result in businesses relocating out of Virginia.

The SCC just made a new rule that Virginia needs to stop rewarding out-of-date data centers with tax credits and require them to pay their fair share. Many states that had tax credits for data centers are either discontinuing them or reducing them including Illinois, Ohio and Georgia.

In order for Virginia to remain a leader in business and data centers then the following actions need to be taken:

• Remove tax credits for out-of-date data centers

• Create regulations to require new data centers to use the most up-to-date technology available

• Incentivize out-of-date data centers to upgrade in order to come into compliance with regulations in order to receive tax credits

Tax credits have helped to attract data centers to Virginia. In order to keep them here and attract future business projects, other factors must be considered. Many businesses are making decisions about locating their projects based on access to energy that meets their Scope 1, 2 and 3 emission goals. Data center providers are increasingly focused on reducing embodied carbon in supply chains as evaluated by the Science Based Targets initiative (SBTi).  Microsoft has a target to be carbon neutral by 2030.  In order for Virginia to remain competitive in attracting new data centers, it is important to make sure Virginia’s energy grid is in alignment with companies’ Scope 1, 2 and 3 goals.

In sum, it’s time for Virginia to stop being the “wild west” for the data center industry. Instead, the General Assembly needs to implement some common sense protections based on emerging technologies to incentivize data centers to use them if they still want to get a tax credit. Technologies such as:

• Zero water cooling

• Seawater cooling

• Heating homes with waste heat

• New developments that will emerge from the DOE Virginia based High Performance Data Facility at the Thomas Jefferson National Accelerator Facility

In order to remain the leader in the data center industry, Virginia needs to incentivize new solutions – or be left behind as people and businesses move to places with better quality of life and job opportunities.

P.S. Use this easy portal to send emails to your state representatives to stop giving tax credits to dirty data centers.

Links:
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[1] https://docs.google.com/document/d/1iEBGdFl1MHGomJqkCBR51SXEA76IPc1MpsVjZ8ZP9ZA/edit?usp=sharing
[2] https://www.kiplinger.com/taxes/many-people-hate-data-centers-billions-in-tax-breaks
[3] https://www.globalmethanepledge.org/
[4] https://aclymate.com/climate-education/what-are-scope-1-2-and-3-emissions-a-complete-guide
[5] https://assets.ceres.org/files/sustainable-solutions-for-data-centers-2026-report.pdf
[6] https://www.microsoft.com/en-us/microsoft-cloud/blog/2024/12/09/sustainable-by-design-next-generation-datacenters-consume-zero-water-for-cooling/
[7] https://www.linkedin.com/posts/leeps_datacenters-sustainability-seawatercooling-activity-7351787036577628161-MhQH
[8] https://www.nokia.com/blog/how-waste-heat-from-nokias-labs-can-keep-finnish-homes-warm/
[9] https://www.science.org/content/article/little-nuclear-physics-lab-to-tackle-department-of-energys-big-data-problem