Since Colorado’s water laws were built around a system designed to balance competing uses of a scarce resource, the rapid growth of artificial intelligence-driven data centers and their often acute water needs is creating a substantial challenge, locally and statewide.
Asked whether Colorado’s existing water laws are equipped to handle the coming wave of datacenter development, Daniel Anderson, a water law fellow with the Getches-Wilkinson Center for Natural Resources, Energy and the Environment at the University of Colorado Law School, answered simply: “I have serious concerns.”
Anderson is a co-author of “Thirst for Data: State Responses to Data Center Water Use,” a 36-page report examining how states are responding to data centers’ water demands. The report identifies four primary approaches: water-use reporting requirements, conservation and water-availability requirements, tax incentives for water-efficient technology and changes to prior appropriation rules.
A Moving Target
The difficulty for policymakers is compounded by the lack of current data about how much water the newest generation of data centers will require.
The Getches-Wilkinson report notes that U.S. data centers used an estimated 17.4 billion gallons of water in 2023, up from 5.6 billion gallons in 2014. Researchers are projecting direct water use could reach 32.8 billion gallons by 2028. Indirect water consumption associated with generating electricity for data centers was estimated at about 211 billion gallons in 2023.
Yet, Anderson said, much of the data being used to project future consumption is based on research conducted before the current wave of AI-driven development.
In response to the uncertainty, some states have introduced legislation requiring data centers to use cooling technologies, such as closed-loop systems that can dramatically reduce the amount of water directly consumed at a facility.
But there’s a caveat: Reducing direct water consumption can increase the amount of water associated with generating the electricity powering the facility. Plus, “this technology could move really quickly, and it could be obsolete in a few years,” Anderson said.
Instead, he favors efficiency standards that measure water use without dictating a particular technology.
Policymakers are generally beginning with disclosure requirements, allowing legislators to better understand the industry before imposing restrictions.
Anderson agreed these requirements are a useful first step, although he cautioned, “If you’re just requiring the reporting disclosure from these existing, even smaller data centers that are not the AI-driven ones, we might not be getting an accurate picture.”
During the 2026 legislative session, Colorado lawmakers considered data-center legislation that included water reporting and conservation provisions, as well as a proposal directing the Department of Local Affairs to develop model codes for large-load data centers. The measures did not advance but are expected to come up again next session.
Anderson said a model-code approach could provide a useful middle ground, giving local governments tools to address projects according to their own water rights, economies and circumstances while providing state-level expertise.
“That marries the concerns of ‘these are very specific to your local community and your water rights and your economy’ with ‘here’s some state-level expertise that your community might not be able to pull off on your own,’” he said.
Municipalities on the Front Line
For now, a lack of statewide legislation leaves municipalities on the front line.
Colorado’s water-rights system is designed to prevent a new use from injuring existing water rights. Yet when a data center connects to a municipal water system, that concentrated use may not go through the same water-rights process as a new appropriation.
“Many data centers are plugging into municipalities,” Anderson said. “That’s a concentrated water use in a way that we are not used to seeing with other industries.”
Anderson pointed to Aurora Water as an example of a utility that has already developed guidelines for large water users. The utility has established water-efficiency requirements and provides a framework for evaluating large users.
Anderson said municipalities considering a large data center in their midst should begin by requiring developers to explain precisely how their cooling technology works. “We want to understand the technology itself so we can understand both the quantity and the quality impacts,” he said.
Municipalities should also ask how the project could affect water rates and the community’s overall water portfolio and what it could mean decades into the future.
Preparing for the Next Proposal
For municipal attorneys, “getting ahead of the curve before the data center shows up” is crucial, Anderson said.
Lawyers should understand the municipality’s water rights and existing policies and bring water specialists into the conversation early, particularly when a project could become a significant water user.
He urged attorneys to note when they learn that a developer is acquiring land in their jurisdiction.
Colorado Water Courts
Colorado has a legal tool that some other states do not: its prior appropriation system.
Anderson said a Colorado law could require state water officials or courts to consider the public-interest implications of water appropriations involving data centers, similar to Idaho’s approach.
While the approach, which is not novel among states but has not been widely adopted, would have limits because much of Colorado’s water is already allocated, a developer seeking a change of use for an existing water right could encounter the water court system, where existing water-right holders can object if they believe the proposed change could injure their rights.
Pointing to Idaho’s example, Anderson said, “That’s where the legislature could say, ‘The state engineer’s office or the water court must consider that data centers may be contrary to the public interest.’”
While Anderson’s research has left him skeptical of a one-size-fits-all solution, he sees a reason to hope: “Communities are really engaged on this.”