Maryland Gov. Wes Moore has run into a major rift with his key partners in advocacy and environmental circles over a bill seeking to exempt data centers from a preliminary environmental scrutiny.

Advocates say the move compromises the state’s climate and environmental targets, weakens regulatory controls and could further harm underserved communities with cancer-causing emissions from huge diesel generators.

“We endorsed Wes Moore primarily because of his forward-facing climate agenda. We liked what he said and his level of commitment. And that’s why this bill has been so difficult,” said Kim Coble, executive director of the Maryland League of Conservation Voters (LCV), choosing her words with caution.

“We weren’t anticipating that the only environmental bill that the [Moore] administration put in this year causes greenhouse gas emissions to go up. So, it’s been very difficult and disappointing for us.”

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The bill Coble and other environmental leaders are having difficulty coming to terms with is the Critical Infrastructure Streamlining Act of 2024, which is winding its way through the General Assembly with the blessings of the Moore administration.

It seeks to exempt high energy-use facilities such as data centers from the regulatory review by the Maryland Public Service Commission (PSC) that is required by law when setting up an electric generating station or the power plant-sized diesel generators those data centers require for emergency back-up.

Companies are normally required to get a Certificate of Public Convenience and Necessity (CPCN) from the PSC, which is issued after the environmental and socioeconomic impacts of a project are assessed; the process can include public hearings if the project has a big environmental footprint. The review is typically time-consuming, which, the Moore administration now argues, was stifling business growth in Maryland.

In December, the Maryland Department of the Environment released the Climate Pollution Reduction Plan (CPRP), which named an array of policy and legislative interventions necessary to achieve Maryland’s climate targets and dedicated $1 billion for climate investments over the next decade.

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A critical asset for businesses, governments and other enterprises globally, data centers are enormous and secure warehouse-style facilities stacked with networked computers and storage systems that enable activities ranging from simple online searches to e-banking and commerce, which require processing large amounts of data.

“Gov. Moore believes it is imperative for the state to invest in decisions that will prepare us for the problems of the future, and this bill is an example of that,” Carter Elliott, senior press secretary to the governor’s office, said in a written response to questions from Inside Climate News. He said that under the proposed legislation, data centers would be subject to the same emissions standards and regulatory requirements as any other facility that requires air quality permitting from the Maryland Department of the Environment.

“Maryland does not have to choose between making a cleaner home for everyone and preparing for the cyber challenges ahead, and the governor is committed to tackling both,” Elliott said, adding that bringing data centers to Maryland will improve and modernize Maryland’s tech economy and bolster the state’s economic competitiveness.

The issue surfaced last year when Aligned Data Centers canceled its proposed Quantum Loophole project in Frederick County after the PSC refused to exempt its 168 back-up diesel generators from CPCN review. The generators would have produced more than 500 MW of energy and a significant air pollution load, LCV stated in its written testimony submitted to the Senate Committee on Education, Energy and the Environment.

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Faced with a budgetary shortfall and lured by the pull of millions of dollars in state revenues from the data center industry, the Moore administration set out to create a legislative workaround for the problem, culminating in the controversial legislative proposal.

“The regulatory process in Maryland that creates unpredictability has been a source of frustration for industries and businesses as they looked to invest,” read the letter from Moore’s office to Brian Feldman, chair of the Senate Committee on Education, Energy and the Environment.

Maryland’s economic growth had underperformed over the past decade, the letter said, singling out the PSC’s 2023 decision on emergency backup generators as an example of “redundant regulatory barriers” which “created uncertainty that prevents businesses from investing in the state.” The bill will attract new tech industries to the state by removing regulatory barriers, the letter said, and will generate millions of dollars in local and state revenue.

In 2020, the Maryland General Assembly passed a sales and use tax exemption for HVAC, servers, routers and other computing equipment for qualified data centers, which substantially reduced the cost to construct them. Building one data center is estimated to cost between $420 million to $770 million. The tax exemption on equipment granted by the General Assembly is estimated to have lowered the construction cost between 55 and 65 percent of initial expenses.

In response to Moore’s bill, more than a dozen environmental and conservation groups including LCV, the Sierra Club, EarthJustice and Waterkeepers Chesapeake submitted testimony to the Senate committee, which held a hearing on Feb. 22. The advocates urged committee members not to give a blanket exemption to energy intensive industries at the cost of public health and regulatory safeguards.

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The 2023 PSC decision not to exempt the proposed Aligned Data Center project from the CPCN review was “prudent,” the Sierra Club stated in its testimony, adding that the project proposed installing 504 MW of diesel generators, enough to power half a million homes. “Diesel generators emit particulate matter and nitrogen oxides,” the nonprofit said, which can cause and exacerbate lung conditions and form ozone, “one of the most dangerous and widespread pollutants in the U.S.”

In their testimonies, the environmental groups reminded committee members that data center concentration in Maryland will put enormous strain on the state’s energy demand and grid capacity, which will have consequences for Maryland’s ability to meet its statutory climate and clean energy targets.

Currently, data centers use around 9.7 gigawatts of power nationally and their energy demand is expected to increase threefold, to 27 GW, within the next few years, according to a 2023 analysis. That would outpace the entire amount of offshore wind generation the Biden Administration currently aims to install nationally. Energy demand for data centers in Virginia is projected to grow from about 2.67 GW in 2022 to 10 GW by 2035, Dominion Energy has estimated.

“We are going to email the full Senate to remind them of the Sierra Club’s opposition to the bill,” said Josh Tulkin, director of the Sierra Club’s Maryland chapter. He believes the bill sets a bad precedent and sends the wrong signal about the purpose of the state’s regulatory structure, which, he said, is supposed to give regulators the tools to navigate new and emerging situations and “not to tell them to watch out and don’t overstep a little strip of your authority.” Data centers pose a significant challenge to Maryland’s climate goals and will have to be addressed by the Moore administration, he added.

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Del. Lorig Charkoudian, a Democrat from Montgomery County, said she was concerned about removing significant environmental protection from the regulatory process in response to the request from the industry. Charkoudian said she has proposed a separate bill, HB905, which would require data centers to purchase 15 percent of their energy from Maryland offshore wind or from solar in order to get the tax credit.

“Part of what I’ve done is try to add these balancing features to this approach that the governor feels very strongly about,” she added.

The bill received a hearing by the House Committee on Ways and Means on Feb. 29 and has not moved since.

LCV’s Coble pointed out that legislators are finding themselves stuck in a catch-22 situation because of the bill they’re having to support. “If you look at the Maryland LCV scorecard we provide legislators their score for that year and a score for their lifetime. And we have some really strong environmental leaders over the lifetime serving in the legislature,” she said. “The administration is asking these environmental leaders to vote for a bill that is anti-environment.” Coble said the legislators should let their leadership know this is putting them in a tough spot.

One example is Senator Katie Hester, who scores high on LCV scorecard for environmental leadership but voted in favor of the controversial data center legislation on March 7 when the Senate committee overwhelmingly passed the bill in a 10-1 vote. Despite multiple requests, Hester’s office did not comment on the vote.

The Senate committee largely ignored the advocates’ suggestions to improve the legislation and sent the bill, following a favorable vote, to the full Senate where it passed the third and final reading on the Senate floor on March 14. The bill will now be sent to the House for further deliberation.

The amendments the advocates proposed to the Senate bill included limiting the use of back-up generators to one hour every month and during power outages; requiring all exempted facilities to submit compliance reports to the PSC; requiring the PSC to carry out a study to recommend future legislative and regulatory actions to manage data centers’ impact on environmental resources and communities, and limiting the “critical infrastructure” designation to facilities necessary for public health and safety.

The amended bill the Senate committee approved counts data centers among critical infrastructure on par with a hospital or a healthcare facility as well as national security related infrastructure requiring onsite backup generators for emergencies and maintenance activities.

“All of us are professionals who have worked in this arena for a long time. And this is not the first time there’s been a significant disagreement with leadership whether it’s a governor or the president or a senator or speaker,” Coble remarked. “I’m going to take a couple of days off and then I’m going to sit down with the administration and say … alright … how do we move forward on data centers? How do we move forward on the Reclaim Renewable Energy bill? We’ve got a lot of work to do.”

This story is published in partnership with Inside Climate News, a nonprofit, independent news organization that covers climate, energy and the environment. Sign up for the ICN newsletter here.