Data centers and their water usage have quickly taken the front stage of many headlines, policy discussions, and personal conversations. And for good reason, the United States is home to 2,077 operational data centers, with an additional 821 under construction and more than 4,000 projects announced; the U.S. represents approximately 39 percent of the world’s data centers.
Clean water is a key resource required to run a data center. Most data centers rely on water-based cooling systems, using potable, drinking water supplied by local utilities. The increase in industrial water use levied by the rise of data centers has placed new pressures on community water resources, as municipal water utilities supply approximately 97 percent of the U.S. data center water demand. While states move to enact their own policies, the rapid increase in water demand has exposed a governance gap that federal policymakers are working to address. Below outlines the progress made, particularly in 2026, toward greater federal oversight of data center water use.
The Federal Government has Issued a Suite of Proposed Guidance on Data Center Water Use this Year
Figure 1: Timeline of Federal Government Guidance and Actions
In response to a governance gap between water usage and data centers, the federal government has begun developing resources and legislation. A host of bills aimed to close this gap have been introduced, including the Water Cost Accountability Act, Liquid Cooling for AI Act, and Data Center Water and Energy Transparency Act. All proposed acts share the goals of ensuring local communities are not overburdened by potential downstream water rate increases due to increased demands and increasing transparency around reported water use.
The Congressional Research Service published an FAQ in July to provide in-depth guidance for the most pressing concerns raised by communities: how data center growth affects local water supplies and customer water bills. The document outlines available federal resources communities can leverage for water management. Agencies like the U.S. Army Corps of Engineers and Bureau of Reclamation provide technical assistance and planning for water supply planning, infrastructure development, and drought resilience. Additionally, the report highlights the Interagency Committee on Water Management and Infrastructure as a resource for improved cross-agency planning and research on water use.
In April, the Environmental Protection Agency (EPA) launched the Water Reuse Action Plan 2.0, signaling one of the federal government’s clearest acknowledgements of the growing connection between data center expansion and water demand. Although not a regulatory or mandatory process, the action plan promotes water reuse, conservation strategies, and collaboration for reduced pressure on freshwater extraction. The EPA has also made efforts to streamline New Source Review permitting, drawing criticism from frontline communities who worry it will limit their ability to be notified of proposed data centers and the impacts.
States Work to Enact Various Policies
While the federal government continues to shape its approach in supporting communities on data center water management, states are exploring various methods to regulate water usage in the data industry. Common proposed approaches include required water reporting, mandated specific cooling systems to save water, or temporarily pause data center development.
New Jersey recently enacted a law that requires data centers to report their water and energy usage every six months. States including California, Iowa, and Michigan are considering similar measures aimed at enhancing access to information on the resource demands of data center operations.
Another state policy is to mandate closed-loop cooling systems. This technique recirculates water within the facility and minimizes water withdrawals and evaporation losses compared to open-loop cooling, which continuously draws and discharges water. South Carolina’s proposed bill would require new data centers to utilize closed-loop cooling, while Kansas lawmakers considered, but ultimately did not advance, similar legislation.
Some states have taken a more cautious approach toward data center growth. New York became the first state to implement a moratorium on new hyperscale data centers through January 2027. Fifteen additional states have introduced similar proposals as policymakers seek a better understanding of the long-term impacts of data centers. By extreme contrast, Georgia has banned local government’s ability to pass data center moratoriums through December 2028, signaling a full policy commitment to the industry growth.
Looking Ahead
Moving forward, the country will likely continue to employ a combination of federal guidance and state-led policies to address data center water use. Given the diverse water challenges facing different regions, it is unlikely a one-size-fits-all regulatory framework will emerge. Policymakers will instead need to consider a range of approaches that balance data center growth with sustainable water management for communities.
