6 Policy Levers Local Governments Can Use to Shape Data Center Energy Impacts

As local governments across the United States make progress toward their clean energy goals, a new challenge is emerging: rising electricity demand from data centers.

Data centers are not new, nor are they the only driver of growing electricity demand. However, the speed and scale of recent development have placed them at the center of conversations about land use, infrastructure investment, siting and economic development. Communities are increasingly concerned about the impacts of data centers on local energy and water systems, noise and air pollution, as well as the broader implications of the growth of artificial intelligence (AI) on economies and society.

Local officials are now grappling with how to enable responsible data center development while delivering tangible community benefits and minimizing potential harms. In most cases, existing local zoning and regulatory frameworks were not designed for today's large-scale data centers, prompting jurisdictions across the country to reevaluate their rules and processes. More than 500 local governments have passed data center-related ordinances or moratoria.

Many of the most consequential decisions affecting data center energy demand occur at the state and regional levels, including utility regulation, transmission planning and wholesale market rules. But local governments retain significant influence over facility-level energy impacts through zoning, permitting, disclosure requirements, design standards and community benefits frameworks.

This article explores these policy levers, highlights emerging practices from communities across the U.S. and offers practical considerations based on WRI’s ongoing technical assistance to local governments. Together, these levers can shape where data centers are built, how they operate and whether their energy demand supports or undermines broader community goals.

How Data Centers Impact Local and Regional Energy Systems

The first step for setting local policy is to understand the energy impacts of potential data center development. Not all data centers are alike. A data center operated by a local business, hospital or university may have very different energy needs and community impacts than a much larger hyperscale facility used to support cloud computing or train AI models. Similarly, local and regional energy systems vary significantly. Factors such as facility size, computing workload, project design and operations, location and grid conditions all influence how much electricity a data center uses and how it affects the regional grid.

Historically, data centers have been sited in or near metropolitan areas to be close to end users and support digital services that rely on fast data processing. Today, the rapid growth of AI and cloud computing is resulting in larger facilities that can require enormous amounts of electricity. Some facilities are adding hundreds of megawatts of new electricity load, equivalent to the energy use of a small city. As a result, these facilities are increasingly being sited in rural or exurban areas where land, power, water, and other infrastructure may be more readily available and where larger projects can be more easily accommodated.

Mid-scale (facilities over 10 MW) and hyperscale data centers (generally 50 MW to over 1 GW) can place significant pressure on local and regional energy systems. Concentrated electricity demand can strain aging grid infrastructure, increase electricity costs and complicate efforts to meet state and local climate goals if this new demand is primarily met with fossil fuels. To accommodate growing demand, including from data centers, some utilities are delaying planned coal plant retirements and proposing gigawatts of new natural gas generation. Some data centers are planning to build new power plants behind the meter.

In addition, data centers use back-up power generation on-site to maintain operations during grid outages. Today, diesel generators are the most common form of backup power, though some facilities are beginning to use natural gas generators, battery storage or hybrid systems. Depending on the technology used, these backup systems can contribute significantly to local air pollution and greenhouse gas emissions. 

Local Governments Have More Influence Than They Realize

Local governments have three primary pathways for influencing data center energy use and impacts:

1. Mitigate facility-level impacts through local policies, zoning, permitting and development requirements that shape data center design and operations.
2. Catalyze community-scale energy investments that lower energy costs, reduce emissions, strengthen resilience and increase grid flexibility.
3. Influence utility, regulatory, legislative and wholesale market decisions to address regional grid impacts and ensure existing customers are not burdened with undue costs.

This article focuses on the first pathway: the policy levers local governments can use to shape data center development and operations at the facility level, from siting and permitting through decommissioning. Future articles will cover the other two pathways.

Policy Levers for Mitigating Facility-Level Data Center Energy Impacts

Few local regulations were designed with data centers in mind. However, local governments can draw on decades of experience managing other forms of large-scale industrial and infrastructure development. Crafting effective policy requires transparent processes for evaluating proposed projects, engaging residents, assessing risks and benefits and monitoring outcomes over time. It also requires clear rules and guardrails for project approval, operations, enforcement and decommissioning to help protect communities throughout a facility's life cycle.

The six policy levers below can help jurisdictions put these principles into practice. Many local governments combine these levers into a comprehensive data center ordinance, but they can also be tailored to reflect local authority and community priorities.

Lever 1: Use Zoning to Guide Where Data Centers Are Built

Zoning is one of the most powerful tools local governments have to influence where and how data centers are developed. While cities and counties typically have limited authority over utility planning and electricity policy, they retain significant control over local land use and project approvals. As a result, zoning, comprehensive planning and other land use authorities can help address concerns about locating data centers near homes, schools and other sensitive uses while shaping facility design and potential energy impacts.

To better manage growth, jurisdictions are increasingly defining data center types as distinct land-use categories within comprehensive plans and zoning codes and creating dedicated overlay districts. These tools allow jurisdictions to direct development to preferred locations and apply additional requirements to certain types of projects, such as hyperscale developments. Overlay districts can steer data centers toward locations with available transmission capacity, areas where clean energy is accessible, sites collocated near potential end uses for heat recovery and reuse or areas that avoid further clustering in grid-constrained regions. For example, Prince William County, Virginia created Data Center Opportunity Zone Overlay Districts to direct development toward areas with existing infrastructure capable of supporting it. Local governments can further strengthen these efforts by coordinating with neighboring jurisdictions to promote a more consistent regional approach.

Lever 2: Establish Clear Requirements Through Permitting

Permitting is a critical mechanism for translating community priorities into project requirements. Cities and counties can influence project design and operations through site plan approvals and conditional or special-use permits, as is done in Atlanta, Georgia. Project approval can be conditioned on requirements such as energy and impact assessments, disclosure of anticipated electricity use, energy-efficient design features, clean energy procurement or specified community benefits. Permitting can also be used to limit the use of fossil fuel backup generators. To be effective, these requirements should be backed by monitoring, enforcement mechanisms and clear penalties for noncompliance. For facilities already in operation, permit renewals can be used to introduce new requirements.

 A major challenge for local governments is understanding the energy and water demands and broader system impacts of proposed data center developments. Without this information, it is difficult to evaluate community impacts, negotiate project design or benefits or establish operating guidelines. To address this gap, some jurisdictions require energy- and water-related disclosures during the permitting process. For example, Phoenix, Arizona adopted a zoning text amendment requiring data centers to report estimated annual “Power Consumption (MW)” and demonstrate utility service or capacity before obtaining a permit.

These disclosures can help jurisdictions assess a facility's operational characteristics before approving a project. Local governments can use tools such as the Great Plains Institute's development review checklist to guide evaluation of proposed facilities.

Lever 3: Increase Transparency Through Energy Disclosure and Monitoring

Jurisdictions cannot manage what they do not measure. Beyond initial assessments conducted during permit review, local governments can require ongoing reporting from data center operators to monitor whether facilities are operating as anticipated and assess cumulative impacts on local infrastructure, utility systems and climate goals. Many jurisdictions already collect and report building performance data through benchmarking ordinances and building performance standards. Similar approaches could be adapted for data centers by requiring ongoing disclosure of electricity use, peak demand, backup generation capacity, water use and other operational characteristics. Chicago, Illinois is considering such an approach. Some jurisdictions are also experimenting with disclosure requirements for other energy-intensive land uses, such as cryptocurrency mining and marijuana cultivation, as is being done in Boulder, Colorado.

Reporting requirements may also be linked to permit renewals, operating agreements or decommissioning processes to ensure accountability throughout a facility’s lifecycle, similar to practices used for utility-scale energy projects and other industrial developments. Public-facing dashboards can further increase transparency, strengthen accountability and build community trust. To ensure disclosures are meaningful, municipalities should clearly define required metrics, reporting timelines, data formats and verification procedures, as well as legally enforceable mechanisms and fees for noncompliance.

Lever 4: Shape How Facilities Are Designed and Powered

Data center design is a primary determinant of energy use and environmental impact. Key considerations include building and IT equipment efficiency, cooling systems, backup power and opportunities for heat recovery and reuse.

Local governments can encourage more sustainable design through permitting requirements, development incentives and sustainability standards. Some jurisdictions, like Lake County, Indiana, require an energy efficiency plan demonstrating how facilities will conserve energy and use renewable energy resources for permit approval. Jurisdictions can also require or incentivize certification under recognized sustainability programs such as LEED for data centers, Green Globes for Data Centers and BREEAM. Minnesota recently enacted legislation requiring just this.

Policies can also shape key operational choices, including backup power sources. Diesel backup generators, in particular, can contribute to local air pollution, greenhouse gas emissions and noise impacts, especially when deployed at large scale or operated for extended periods. Battery energy storage can reduce emissions and air pollution while improving system flexibility and resilience. Local governments can further encourage innovative approaches such as waste heat reuse through district energy systems or industrial applications.

While most large-scale data centers cannot meet all of their electricity needs through on-site renewable energy alone, jurisdictions can encourage clean energy adoption through on-site generation and storage, as well as off-site clean energy procurement. Solar and battery can improve resilience, reduce reliance on the grid, provide grid-support services and lower emissions and local air pollution if used instead of fossil fuel generators. Aurora, Illinois, for example, requires data centers to either use on-site renewables for at least 25% of peak load or provide battery storage equal to at least 50% of peak load for 15 minutes, with alternative compliance available. Clear compliance pathways should identify allowable procurement mechanisms (such as power purchase agreements, renewable energy credits or utility green tariffs) or other requirements.

Lever 5: Remove Barriers to Clean Energy and Storage

Local governments can remove barriers to clean energy deployment and facilitate the installation and scaling of distributed and utility-scale clean energy resources, including solar, wind, battery storage and microgrids. Streamlining permitting and modernizing municipal regulations can make it easier for residents, businesses, data center developers and renewable energy developers to install and scale clean energy technologies.

Local governments can update zoning ordinances to clarify what can be installed where and establish simple, transparent permitting pathways for clean energy projects. Organizations like WRI support jurisdictions in identifying and addressing these barriers through programs such as the U.S. Department of Energy’s SolSmart program, which provides free technical assistance and resources to improve local zoning and permitting for solar development.

Battery energy storage systems deserve particular attention from local governments. Expanded battery storage can help maximize use of existing grid infrastructure, increase system flexibility and reduce the need for new fossil fuel generation. However, many jurisdictions lack clear rules governing the siting and deployment of battery energy storage systems, creating uncertainty for developers and slowing project deployment. Clarifying local requirements can dramatically accelerate battery adoption by data centers, businesses and residents alike. For example, New York State has developed model laws and guidance documents to help municipalities standardize local battery storage regulations.

Lever 6: Align Private Investment with Public Priorities

Local governments can use community benefits ordinances, development agreements and other approval requirements to ensure data center projects deliver tangible value to residents. These policies establish expectations for community investments and create a formal mechanism for aligning private development with public priorities.

Detroit, Michigan, provides one example. The city’s Community Benefits Ordinance applies to qualifying development projects and creates a structured process for negotiating benefits between developers and residents. Similar approaches are emerging for data center development. In November 2025, Lancaster, Pennsylvania signed a community benefits agreement with a data center developer that included a $20 million community investment and commitments related to clean energy procurement. Communities can use these agreements to secure investments in priorities such as energy efficiency, clean energy deployment, workforce development, utility bill assistance, virtual power plants or other locally defined priorities.

Local governments can also tie tax incentives, tax increment financing, expedited permitting or other development incentives to measurable public outcomes. Incentives may be conditioned on commitments related to clean energy use, sustainable design, workforce training, community investment or other policy goals. To protect public interests, these agreements should include clear performance metrics, reporting requirements and clawback provisions if commitments are not met. Climate Mayors provides resources for elected officials interested in negotiating with data center developers.

Ensuring Data Center Growth Delivers Community Benefits

Without clear policy frameworks, data center development can quickly outpace the energy, economic and climate goals of the communities that host it. Yet local governments are far from powerless. Through policy levers like zoning, permitting, disclosure requirements, enforcement mechanisms, incentives and community benefits frameworks, local governments have significant authority to shape how data centers are developed and operated, what impacts they have on communities and energy systems and whether and how communities benefit.

Energy is only one part of the story. Communities are also grappling with issues such as land use, water consumption, economic development, housing pressures and community engagement. Many of the same policy levers discussed above can help local governments address these challenges, making proactive planning essential to ensuring data center growth aligns with community priorities and delivers shared benefits.

At the same time, local governments do not operate in a vacuum. Many of the most significant impacts of data center growth, particularly those related to electricity infrastructure, regional grid planning and electricity costs, extend far beyond municipal boundaries. Addressing these challenges will require coordination among neighboring jurisdictions, utilities, regulators, legislators and regional grid operators.  The effect of data centers on electricity bills varies based on factors such as supply constraints, tariff design, and how infrastructure costs are allocated across customer classes.  In some regions, including PJM, rapid data center-driven load growth is already contributing to higher electricity prices, while the urgency to bring new capacity online is increasing costs across the energy supply chain. As policymakers debate how to allocate the costs and benefits of data center growth, local governments can play an important role in advocating for policies that support responsible development, protect residents and ratepayers and ensure communities share in the economic opportunities these investments create.