DC’s AI Policy Collision
How Budget Reconciliation Became the Battleground for America's AI Future
For the past month, Washington, D.C. has been at war over a piece of legislation that must pass in the coming weeks. In the crucible of D.C. politics is the budget reconciliation: a special process that allows the majority party to pass spending, tax, and debt-related measures with just 51 votes in the Senate, bypassing the usual 60-vote filibuster threshold. Originally designed for budget adjustments, reconciliation has become the vehicle for sweeping policy changes—from Obamacare to Trump's 2017 tax cuts. In short, it is Congress's nuclear option for passing major legislation.
Republicans are now using reconciliation to pass what they're calling the "One Big Beautiful Bill," a massive package that would fundamentally reshape American energy and technology policy. But buried within this budget bill are two provisions that could profoundly impact the trajectory of AI development.
Battle #1: The Energy Infrastructure
On one side of the bill, Republicans are moving to gut the clean energy incentives that have been bolstering America's energy supply to keep pace with escalating demand. The proposed changes include:
Rolling back tax credits for wind, solar, and battery manufacturing
Imposing punitive taxes on renewable projects using foreign materials
Eliminating incentives that have already attracted billions in clean energy investment
In some ways, this is typical political grandstanding. In other ways, it is a bit off. AI is incredibly energy-hungry, and America's AI ambitions require massive amounts of cheap, reliable power.
Here's the math that makes this contradiction so stark: Wind and solar are now the cheapest sources of new electricity, coming in at $37-86 per megawatt-hour for onshore wind and $38-78 for utility-scale solar. Even the most efficient new gas plants cost $48-109 per megawatt-hour. Meanwhile, China invested $940 billion in low-carbon energy in 2024 alone, treating energy abundance as a strategic national asset.
And on top of this fundamental geopolitical reality, rise in energy demand is now impacting consumers who are facing higher electricity costs with no sight of an end. For example, “New Jersey residents got some bad news earlier this year when the state's public utilities board warned that their electricity bills could surge up to 20% starting on June 1. A key driver in that rate hike: data centers.” And this is just the beginning.
Don’t take my word for it. Just last month, the Data Center Coalition, whose 38 members include Amazon Web Services, Google, Meta, and Microsoft, sent a letter to Senate Majority Leader John Thune asking him to extend the deadline for building new clean energy facilities with the subsidies. The letter warned that "energy constraints could hinder or delay the buildout of data centers vital to U.S. leadership in AI" and urged Congress to "take a pragmatic approach to ensure we can meet the energy needs of data centers at a pivotal moment for our industry and country.”
Elon Musk calls the Senate’s latest version of the spending bill “utterly insane and destructive.”
The proposed policy essentially demands "more pizza factories while cutting supplies of dough, cheese and tomatoes."
Battle #2: The State Regulation Showdown
On the other side of the same bill sits the Blackburn-Cruz AI moratorium amendment, a provision that would prevent states from regulating AI systems for five years. Originally proposed as a 10-year moratorium, it was "compromised" down to five years after facing massive opposition. The moratorium essentially says "only Congress can regulate AI" while Congress has failed to pass comprehensive AI legislation. This creates a regulatory vacuum during the most critical period of AI development.
OpenAI has been in favor of the moratorium, citing the way in which a patchwork of state laws would stifle innovation. Anthropic sees it differently, with its CEO arguing that the “without a clear plan for a federal response, a moratorium would give us the worst of both worlds — no ability for states to act, and no national policy as a backstop.”
Over 1,000 AI bills have been proposed at the state level, with many lawmakers struggling to keep up with the rapidly evolving technology. And to date, several states states across the country - from Texas to California - have passed legislations to harness innovation and provide guardrails for safety. The fears around unhindered AI innovation - as is the excitement for its potential - seem to be bipartisan.
The Blackburn-Cruz amendment faces opposition from an unprecedented coalition:
Over 130 organizations working on children's online safety
Labor unions representing 40,000+ workers
Consumer protection groups
State legislators themselves
Even some Republican-aligned advocacy groups
Worth noting, the "compromise" language still includes loopholes that could undermine state laws. It requires states to prove their AI regulations don't place an "undue" or "disproportionate burden" on AI systems, a standard so vague it could challenge virtually any meaningful regulation.
The Stakes for Sustainable Growth
For those of us working at the intersection of AI and sustainability, this weekend's developments represent a perfect storm of bad policy:
Energy: Cutting clean energy incentives while courting energy-intensive AI industries
Governance: Preventing state-level policy experimentation while federal action remains gridlocked
Innovation: Creating regulatory uncertainty that could stifle sustainable AI development
What Happens Next
Of course, energy and AI are not the only controversial measures in the bill. There are seismic fights happening over healthcare, taxes, and other incredibly important industries and services. And these consequential fights are happening at the speed of light. Republicans hope to pass it before July 4th. But the opposition is growing. Senator Cantwell (with the support of Markey) has filed an amendment to strip the AI moratorium entirely, and the energy provisions face pushback from districts that have benefited from clean energy investment.
The irony is that many of the solar and battery manufacturing facilities that would be affected by the energy rollbacks are located in districts represented by the very lawmakers pushing these changes.
The reconciliation bill has become an inadvertent test of whether American policymakers understand what it actually takes to lead in the AI age. So far, the answer appears to be no.