Should WA data centers generate their own clean energy to get tax breaks?

In one of his first acts as Washington’s governor, Bob Ferguson created a workgroup of environmentalists, tech leaders, and government officials to find common ground in the great AI data center building boom debate.

The group was charged with balancing Washington’s sustainability and economic growth goals. On Dec. 1, the workgroup will send its recommendations to Ferguson’s office, with one omission that has some conservationists concerned.

Data centers in Washington use sales-and-use tax breaks designed to incentivize companies to build in communities that could use an economic boost. Some on the workgroup wanted to make those requirements contingent on data center companies coming up with their own sources of clean power. The recommendation would also extend the tax break to data centers built across all of Washington.

The workgroup will not include the clean energy recommendation in its final report, a development first reported by Columbia Insight and confirmed by group member Zachariah Baker, policy director for NW Energy Coalition.

It’s the only one of the nine draft recommendations that won’t make the final cut. Baker wanted to see the clean energy generation requirement included in the final report, but ultimately voted against the recommendation because it is coupled with extending the tax breaks statewide.

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“Our perspective is that if there are going to be tax incentives, then there should be more requirements to try to move the data centers to a higher standard — encourage them to move towards a gold standard that would both protect the environment and protect communities,” Baker said.

That doesn’t mean data centers will have carte blanche to run on carbon power sources. The workgroup is still recommending data centers comply with Washington’s environmental laws, including one that requires all electricity generation in Washington state to be free of greenhouse gas emissions by 2045. But many are concerned those goals are unrealistic given the current pace of data center construction, and the massive energy it takes to run the facilities.

State law is also less clear on whether data centers can run on fossil fuels if they build their own plants instead of getting power from the grid. Some data center companies have signaled an interest in building their own natural gas plants. The NW Energy Coalition wants the state to clarify the rules.

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“That was really important to us because of the energy demand that these data centers require,” Baker said. “They require massive amounts of energy, and if they're not using clean energy from the start and as soon as possible, that can threaten our ability to be able to meet our state's climate and clean energy goals if they're relying on fossil fuels instead of clean energy.”

Data centers and chip fabrication — both essential to AI — are expected to add anywhere from 2,200 to 4,800 average megawatts of electricity load across the Pacific Northwest by 2030, according to a report to the Washington Department of Revenue. Electric cars and home appliances are expected to add additional strain on the grid, too.

“ Just to put those numbers in context the city of Seattle uses about a thousand average megawatts to power Seattle,” Baker said. “So you're talking about two to four new potential Seattles by 2030.”

Baker hopes the recommendations will inform rule making and legislation as the state seeks to manage the data center boom. He’s still holding out hope for a policy solution that requires data center companies to generate their own clean power.

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