Highlands Act: Gaming the Rules or Smart Strategy?
Discover how the Highlands Act is reshaping development strategies—crucial insights for today's infrastructure developers!
The New Jersey Highlands Act was never designed with data centers in mind. Enacted in 2004 to protect roughly 860,000 acres of critically important watershed, forest, and farmland in northern New Jersey, the law was built to stop sprawl — not to referee a 21st-century infrastructure land rush. But that's exactly what it's become.
Developers are now scrutinizing every provision, every exemption, and every zoning classification the Act contains, looking for angles that let them site high-demand infrastructure — data centers, battery storage facilities, utility-scale solar — inside or adjacent to the Highlands Region without triggering the full weight of its protections. Whether that constitutes gaming the rules or simply doing smart legal and strategic work depends entirely on where you're standing.
What's not debatable: the Highlands Act is reshaping how serious developers approach land use in New Jersey, and anyone who hasn't read it closely is already behind.
What the Highlands Act Actually Does — and Doesn't Do
Most people who invoke the Highlands Act have a rough idea of what it is: an environmental protection statute. That's accurate but incomplete. The Act creates two distinct zones within the Highlands Region — the Preservation Area and the Planning Area — and the difference between the two is enormous in practical terms.
The Preservation Area is the hard no. Development is severely restricted, environmental review is intensive, and getting a major infrastructure project approved there is, for most developers, not worth the attempt. The Planning Area is more nuanced. Municipalities within it can opt into the Highlands Regional Master Plan, which unlocks certain regulatory pathways and incentives, or they can stay out — retaining local zoning authority but losing access to state planning benefits.
That opt-in/opt-out dynamic is where the strategic complexity begins. A developer who understands which municipalities have conformed to the Regional Master Plan, and what that conformance actually permits, has a meaningful competitive advantage over one who treats the entire Highlands Region as a monolithic no-go zone.
The Act also carves out exemptions — for agricultural operations, redevelopment of previously disturbed sites, and certain utility infrastructure — that have become focal points for creative project structuring. Redevelopment exemptions, in particular, have drawn attention. If a site has prior impervious cover or existing utility infrastructure, it may qualify for treatment as a redevelopment project rather than new development, sidestepping some of the Act's most restrictive provisions.
The Compliance Traps Developers Keep Falling Into
Understanding the Act's structure is one thing. Executing a project that survives regulatory scrutiny is another.
The most common mistake is treating Highlands compliance as a single-step process. It isn't. A project in the Highlands Region may need to satisfy the New Jersey Highlands Water Protection and Planning Council (the Highlands Council), the New Jersey Department of Environmental Protection, local planning and zoning boards, and — depending on the project type — FERC or other federal bodies. These entities don't always agree, and their timelines rarely align.
A second trap: assuming that a favorable Highlands Council determination insulates a project from challenge. It doesn't. Third-party appeals, particularly from environmental groups with deep familiarity with the Act, have delayed or killed projects that appeared to have clean regulatory paths. The Act creates standing for challenges that most other land use frameworks don't, and motivated opponents know how to use it.
The developers who navigate this successfully tend to front-load their legal and environmental work — not because regulators require it, but because the cost of discovering a fatal flaw at the permitting stage dwarfs the cost of finding it during due diligence.
For data center development specifically, the water question is particularly acute. The Highlands Act exists primarily to protect a watershed that supplies drinking water to roughly 5.4 million New Jersey residents. Data centers are water-intensive by nature — cooling systems can consume millions of gallons annually. Any developer proposing a significant compute facility near the Highlands Region needs a credible, detailed water use analysis before the first public meeting. Showing up without one signals either ignorance or arrogance, neither of which plays well with regulators or local boards.
Where Infrastructure Projects Have Found Room to Move
The projects that have moved successfully through Highlands-adjacent regulatory processes share some common characteristics. They tend to be sited on previously disturbed land. They engage the Highlands Council and local officials early — not as a formality, but as a genuine effort to shape the project around legitimate concerns. And they come with economic arguments that local governments find compelling.
That last point matters more than developers sometimes acknowledge. Conforming municipalities within the Highlands Region have often accepted development restrictions that cost them ratables — taxable property value — relative to what they might have captured without the Act's constraints. A developer who brings a project that generates significant tax revenue, local jobs, or utility infrastructure improvements is speaking a language that municipal officials genuinely want to hear.
Battery storage and solar installations have found more traction in this environment than data centers, partly because their footprint and water demand profiles are more compatible with Highlands objectives. A well-sited solar array on a brownfield or degraded agricultural parcel can actually align with the Act's goals by generating clean energy without new impervious cover or significant water consumption. Several developers have structured projects specifically around Highlands-compatible use profiles — not as a workaround, but as a genuine product-market fit with the regulatory environment.
The Strategies Worth Borrowing
For developers who want to operate effectively in and around the Highlands Region, a few approaches have proven durable.
Site selection as a regulatory instrument. The choice of parcel isn't just a real estate decision — it's the primary determinant of regulatory complexity. A site with existing impervious cover, prior industrial use, and location in a conforming Planning Area municipality starts the project in a fundamentally different position than a greenfield site anywhere near the Preservation Area. Serious developers build their site screening criteria around Highlands classification from the beginning, not as a filter applied after the fact.
Engage the Highlands Council as a resource, not just an obstacle. The Council has technical staff who understand the Act's provisions in granular detail. Early, informal conversations about a project concept can surface issues — and opportunities — that no amount of desk research will reveal. Developers who treat the Council as an adversary from day one tend to have longer, harder regulatory processes than those who don't.
Structure water use commitments explicitly. Given the Act's core purpose, a credible water management plan isn't just good practice — it's table stakes. For larger projects, water offsets, recirculating cooling systems, or formal agreements with water utilities can meaningfully improve the regulatory posture of an application.
Where This Is Heading
The pressure on the Highlands Region isn't going to ease. Demand for infrastructure — data centers, grid-scale storage, distributed energy resources — is accelerating across the Northeast, and New Jersey sits at a geographic and grid intersection that makes it attractive for all of these asset classes. The Highlands Act isn't going away, but the regulatory interpretations around it will continue to evolve.
There's a real possibility that the Highlands Council will face pressure to revisit exemption categories and thresholds that were written before anyone was seriously contemplating hyperscale compute facilities or gigawatt-hour battery installations. Whether that results in tightened restrictions or new permissible use categories will depend substantially on how the development community engages — or doesn't — with the rulemaking process.
Developers who treat regulatory engagement as a cost of doing business rather than a value-creation opportunity will continue to be surprised by outcomes that more sophisticated operators anticipated months or years earlier.
The Highlands Act isn't a puzzle to be solved once. It's a living regulatory environment that rewards sustained attention, genuine stakeholder engagement, and the kind of project structuring that treats environmental constraints as design inputs rather than obstacles to route around. That's not idealism — it's how projects get built.
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