Federal Deregulatory Framework
On July 23, 2025, the White House unveiled its AI Action Plan. The Action Plan is intended to be a “roadmap” to “global dominance in artificial intelligence.” Along with the Action Plan came three Executive Orders. This year, President Donald Trump has enacted a total of seven executive orders related to AI and energy.
One of the July executive orders, “Accelerating Federal Permitting of Data Center Infrastructure,” provides financial support for and reduces federal regulatory burdens on the development of AI infrastructure, including data centers and accompanying equipment like transmission lines, natural gas turbines, and nuclear power equipment. The Order specifically targets burdens imposed by the environmental regulatory framework.
The environmental regulatory scheme includes, among others, the National Environmental Policy Act (NEPA), the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, and the Endangered Species Act. NEPA is considered the “Magna Carta” of environmental law. It requires federal agencies to review the environmental effects of their proposed actions, which includes decisions on permit applications, the construction of public facilities, and adopting federal land management actions.
The Executive Order empowers executive agencies to “rely on any sufficient basis” to identify areas of categorical exclusion from NEPA regulation, as well as establish new exclusions, under the theory that many projects do not have a significant effect on the environment. The Order also removes NEPA’s automatic requirement of environmental review for federally-funded projects, so long as the federal funds account for less than 50% of a total project’s cost. Agencies, such as the Environmental Protection Agency (EPA) and Council on Environmental Quality (CEQ), are directed to streamline permitting and consider the necessity of its regulations. Additionally, the EPA must identify federal lands to be reused for AI infrastructure projects and expedite their development.
Several agencies have updated their NEPA guidance in accordance with the AI- and energy-related Executive Orders. The CEQ, established by NEPA in 1970, removed its existing implementing regulations for NEPA from the Code of Federal Regulations, finding that it lacks the authority to issue binding rules on agencies.
Data Centers Amid State Regulations
The Trump administration’s Action Plan aims not only to lessen federal regulation but also to prevent state AI regulation that might interfere with federal goals. The administration’s concerns extend outside of the executive branch. For example, in Congress, an earlier draft of the One Big Beautiful Bill Act (OBBBA) proposed a 10-year moratorium on state AI regulation as a condition to accessing federal funds. After significant bipartisan criticism, however, the OBBBA was passed on July 4, 2025, ultimately without the provision.
For now, state regulations continue to shape the progress of data center development. Luckily for developers, states are rising to the occasion.
States’ Business-Friendly Responses to the AI Boom
Tech companies and data center investors are buying up real estate and investing billions into the enterprise. States, attracted by the potential economic boon promised by the AI industry, are now competing to entice data center developers, shifting laws and regulations to accommodate them. This intense market demand for AI data centers, as well as the executive federal policy to expedite their development, is reshaping state policy.
Some states already have business-friendly frameworks. Due to states’ differing environmental and tax regulations, data centers in the United States have historically been concentrated in a few key areas, including Northern Virginia, Chicago, Texas, Silicon Valley, and Georgia.
The Commonwealth of Virginia, for example, has the largest data center market in the world, accounting for approximately 35% of all known hyperscale data centers. Recently, on October 20, 2025, Amazon Web Services (AWS) suffered an internet outage, disrupting businesses and services like Reddit, Snapchat, Venmo, and Zoom. The outage was traced to data centers in AWS’s northern Virginia cluster. Still, Virginia remains a popular spot. It was the first state to allow data centers to receive sales tax exemption, and it offers several other tax exemptions to promote this industry. On its website, the Virginia Economic Development Partnership, an authority under the Commonwealth, boasts“abundant, affordable electric power” and a “business-friendly environment (including state and local incentives for the data center industry.)”
Recently, Meta announced its plan to build a $100 billion AI data center, the company’s largest ever, in northeast Louisiana. The state is hoping that the project will transform the surrounding rural area, where 1 in 4 live in poverty. The company was attracted by Louisiana’s large swathes of flat land and the promise of low-cost and reliable energy. More importantly, however, Governor Jeff Landry promised a business-friendly environment: last June, in 2024, he signed a 20-year sales tax exemption for data centers built before 2029. In the past 5 years, 16 states have handed out nearly $6 billion in similar tax breaks.
States can also curtail the state or local regulatory processes to which data centers are subject. For example, in April 2025, West Virginia passed House Bill 2014 (also called the “Power Generation and Consumption Act”), which places data centers in the state outside of the control of local zoning and tax ordinances. The findings of HB 2014 echo the Trump administration’s executive orders, citing the global leadership of the People’s Republic of China as a threat to the United States’ national security interests.
Federal and State Deregulatory Alignment: Toward AI and Economic Dominance
Data center development promises dramatic economic growth. The federal and state governments have rushed to facilitate this growth by narrowing the scope of NEPA and other environmental policies while creating financial incentives for developers. Some federal and state policymakers are even experimenting with using AI to expedite NEPA reviews and permitting processes.
Whether the plans will pay off remains to be seen. Hesitation from state governments and investors is mounting, and new projects, like the Meta data center to be built in Louisiana, may not deliver on some promises. In some states, the amount of water required to power and cool the data centers exceeds sustainable levels. A few states have already made moves to regulate data centers more closely. Regardless, the Trump administration recently announced a joint venture among OpenAI, SoftBank, and Oracle, which would invest hundreds of billions of dollars in data centers. Other data center developers are coming as well, and many states are prepared to fight for their share.