What new rules for data centers mean for the environment and the industry’s future in Minnesota

For the first time, data centers coming to Minnesota will have to comply with guidelines aimed at protecting the state’s climate goals, water and household electric bills. They will also have to pay for conservation projects that help low-income families.

At the same time, data centers will keep most of the lucrative tax breaks that the country’s largest tech companies say are vital to developing these projects in Minnesota.

That was the outcome of months of negotiations at the Minnesota Legislature over how to treat an entirely new industry in the state. Data centers serve the skyrocketing demand for cloud computing and artificial intelligence products, but also raise concerns that the energy-hungry facilities will drain the state’s resources.

The compromise passed with bipartisan support at the Capitol, and it makes Minnesota a “nation-leading model” for regulating data centers, said Sen. Nick Frentz, DFL-North Mankato.

“With this legislation I believe we’ll see more coming to Minnesota,” said Rep. Greg Davids, R-Preston.

The agreement also drew bipartisan opposition. Some DFL lawmakers and environmental groups wanted tougher limits on water use and transparency requirements for the industry.

‘I think we’re moving in the right direction, we’re part-way there," said Rep. Patty Acomb, a Minnetonka Democrat who led the push for stricter rules on data centers. “It’s not in my opinion, and I think in Minnesotans’ opinions, strong enough environmental protections.”

Before the deal, Republican lawmakers, the data center industry and some labor unions argued Minnesota is falling behind other states in wooing projects that come with many construction jobs and a local tax windfall. They have mixed feelings over whether the final bill will help.

Many are frustrated that Amazon decided last month to suspend a colossal data center it planned in Becker. The company has since announced a $10 billion project in North Carolina and facilities worth $20 billion in Pennsylvania, where the company could get subsidies worth tens of millions.

“We were looking at the Amazon project as the equivalent of three Vikings stadiums,” said Joel Johnson, legislative director for the International Brotherhood of Electrical Workers State Council.

The deal brokered by lawmakers says data centers must consider water conservation measures if they plan to use more than 100 million gallons per year to cool the facility. The cost of building new power plants to serve data centers can’t fall on other customers of public utilities like Xcel Energy or Duluth-based Minnesota Power.

Public utilities must also submit a plan on how they will serve a new large-scale data center while complying with Minnesota’s regulations for a carbon-free grid by 2040.

Huge data centers also must pay between $2 million to $5 million a year on energy conservation programs for low-income people. That’s unique in the country, according to the nonprofit Center for Energy and Environment.

The Legislature extended sales tax exemptions for computers, servers, software, cooling and energy equipment that were set to expire in 2042. That’s currently worth about $100 million a year for data center companies but is expected to grow substantially. The lawmakers eliminated a smaller subsidy, an exemption from sales taxes for electricity.

For many critics of data centers, the bill fell short.

Sarah Mooradian, government relations and policy director for the environmental nonprofit CURE, said her organization wanted to require data centers conserve water or at least explain their plans better. “The final language lacks teeth,” she said.

Others objected to keeping any of the tax breaks. “We had Amazon in our building lobbying us hard,” said Rep. Athena Hollins, DFL-St. Paul. “Amazon. Amazon. Jeff Bezos. Amazon. He does not need a tax break.”

The industry, on the other hand, didn’t get all of the incentives they wanted. Amazon failed to persuade the Legislature to relax permitting requirements for a fleet of backup diesel generators it wanted to build in Becker.

Most of the major developers in the state — Amazon, Meta Platforms, Google, Microsoft and Tract — declined to comment or did not respond to the Minnesota Star Tribune.

Amazon had proposed one of at least 11 major data centers in various stages of development in Minnesota. Meta is the only one currently building a large-scale project.

Rep. Shane Mekeland, a Republican from Clear Lake, said Amazon told him the company was eyeing several projects in Minnesota but “officially backed out” because of the final deal.

Mekeland said data center operators will have to decide if it’s worth it to build in Minnesota given the regulations and new costs.

“Unfortunately we’ve seen with some of these it’s not,” Mekeland said.

Asked to comment on Amazon’s departure and the data center legislation, Claire Lancaster, Gov. Tim Walz’s spokeswoman, said the governor plans to sign the bill and is “committed to bringing jobs and economic development to Minnesota.”

The regulations and siting for backup generation could take up to three years to navigate, said Drew Johnson, senior vice president of development at Excelsior-based Oppidan, which has proposed three large-scale data centers in Minnesota.

In comparison, Johnson said Oppidan has built data centers in California, Maryland and Virginia where lawmakers made sure permitting for backup generation is faster.

At an event celebrating a smaller data center in Eagan last week, Johnson told a crowd that Minnesota is, for now, “a very distant last place in our region” for data center projects. Google alone says it has spent more than $6.8 billion in Iowa since 2007.

The Associated Press reported that Pennsylvania might offer tens of millions in incentives for two Amazon data center projects and in late May was writing legislation to fast-track permitting for an industry scrambling to grow explosively.

More states are approving or expanding tax exemptions, the AP reported, that industry views as a basic requirement for development. Other states are speeding up permitting or power plant construction.

Johnson said Minnesota has positives, like a “talent-rich construction market” and skilled workforce that makes him “hopeful for future investment.”

Tom Dicklich, executive director of the Minnesota State Building and Construction Trades Council, said Meta and Google told him Minnesota would still be attractive now that the dust has settled.

“Maybe it’s not the best for them, but they seemed OK,” he said.