Environmental groups warn Colorado lawmakers of risks from data center bill

Yahoo

17-04-2025

Interior of a modern data center. (Stock photo)
A bill moving through the state Legislature to establish tax breaks for energy-hogging data centers could pose serious risks to Colorado's climate goals, utility rates and state budget, environmental groups say.
Senate Bill 25-280 was given initial approval by the Senate Transportation and Energy Committee on a 6-3 vote, after a lengthy hearing on Wednesday. Democrats, who hold commanding majorities at the statehouse, were split on the bill, with three joining the committee's Republicans in favor, and three opposed.
Sponsored by state Sens. Nick Hinrichsen, a Pueblo Democrat, and Paul Lundeen, a Colorado Springs Republican, the measure would create a 'Data Center Development and Grid Modernization Program' in the state's economic development office. Beginning in 2026, it would offer sales and income tax credits to incentivize investments in data centers and upgrades to electric transmission infrastructure. A nonpartisan fiscal analysis estimates the tax breaks would initially cost the state about $17 million a year.
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Hinrichsen pitched data centers — sprawling server farms that power artificial intelligence models, cloud computing services and other technology — as an economic lifeline for communities like Pueblo, which faces a looming drop-off in tax revenue because of the early closure of Xcel Energy's coal-fired Comanche Generating Station. To help the state meet its greenhouse gas emissions targets, Comanche's final remaining 750-megawatt generating unit is now scheduled to be closed 40 years ahead of schedule in 2031, with a local tax revenue loss estimated at $25 million a year.
'We're heading towards this cliff, and we have some significant challenges, but with data centers, we have a really, really unique opportunity,' Hinrichsen said. 'We have a prime geographic location. We have the energy capacity and development capabilities to support a data center.'
States rethink data centers as 'electricity hogs' strain the grid
But a nationwide boom in data center construction, largely driven by investment in AI, has stoked concerns about the electricity- and water-intensive facilities' impact on the environment, and what the surging demand for energy could do to utility rates paid by consumers. Data centers made up about 4.4% of all U.S. electricity demand in 2023, and that figure could rise to 12% by 2028, the Department of Energy estimated last year. In addition to large amounts of electricity, operators use millions of gallons of water a year to cool their equipment.
Megan Kemp, a policy advocate with environmental group EarthJustice, called SB-280 'rushed legislation' that doesn't balance generous incentives for data center operators with protections for Colorado communities.
'(The bill) fails to provide critical safeguards for utility customers, neglects to consider impacts on communities and undermines our progress toward meeting critical climate goals,' Kemp told lawmakers.
The bill's sponsors and its critics disagreed sharply during Wednesday's hearing on the outlook for the data center industry in Colorado in the absence of new incentives.
Hinrichsen said that while he was reluctant to pass legislation that would reduce state tax revenues in the face of a serious budget crunch, he had been convinced by 'hundreds of conversations over the summer and fall' that Colorado isn't competing effectively with other states for data center investments.
'What I have heard talking to folks in my economic development community, folks at the chamber of commerce, and those in the data center development world, is, 'It's not going to happen in our current framework,'' he said. 'This is an opportunity that we're uniquely poised to capitalize on, that we will not capitalize on, and 100% of nothing is precisely nothing.'
But Justin Brant, utility program director at the Southwest Energy Efficiency Project, a Boulder-based environmental group, pointed to requests for over two gigawatts of new electricity load received by Xcel Energy, Colorado's largest electric utility.
'Data centers are coming to our state no matter what,' Brant said.
Climate advocates are especially concerned that surging data center demand could lead electricity providers to prolong the use of fossil-fuel-powered generating assets, a trend already seen in the southeastern U.S., where utilities are expanding natural gas infrastructure to meet the anticipated demand increase.
Sara Axelrod, head of public affairs at Denver-based Crusoe Energy, told lawmakers of the 'cocktail of energy solutions needed to power campuses like this.' Crusoe began in 2018 as a bitcoin mining operation powered by the waste methane from oil and gas extraction — excess natural gas that's typically vented or flared by drillers — and now uses the same power source to power AI infrastructure.
'There is no perfect, one-size-fits-all energy solution when it comes to powering these data centers, particularly as we talk about AI and the increasing scale of these data centers,' Axelrod said.
Committee members adopted five amendments to the bill on Wednesday, including a major rewrite known as 'strike below' amendment, which Hinrichsen said was intended to address concerns from labor groups.
But Brant said that while the amendment did 'address some of our concerns, it raises a whole host of additional ones,' including questions about geographic preferences for data center sites and the applicability of the state's renewable energy standard.
'This bill was written by the data centers with little or no stakeholder involvement,' he said. 'We'd be happy to work with them and the sponsors in the interim to get something right, but this one doesn't do it.'
'There's so many big things that still need to be ironed out, that I'm really concerned,' said state Sen. Lisa Cutter, an Evergreen Democrat who voted against the bill. 'I think you're trying to address some of these things. But it just seems like there's still a lot to be discussed.'
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