Data Centers At Risk of Becoming a Political Liability
Artificial Intelligence is a key priority for President Trump and has been a key focus in the financial markets. However, AI and the seemingly insatiable demand for new data centers is drawing political backlash as individuals worry about AI’s impact on jobs and the impact of data centers on their communities.
Data Centers at Risk Of Becoming A Political Liability
AI at a hinge point. Data centers and the AI trade have been of keen interest for financial markets and have driven a significant amount of investment and capital spending in recent years. In fact, data center construction spending is now larger than general office construction spending. However, data centers are also increasingly facing pushback in local communities due to rising utility bills, concerns about their impact on noise levels and water usage, and worries about AI taking jobs. It will likely be an issue in the midterm elections, which will be focused (at least in part) on affordability. The emerging policy debate over data centers is reminiscent of that of 2009-2010 when political opposition grew related to economic and health concerns about fracking.
State and local actions targeting data centers. Municipalities have already enacted bans on new data centers. Georgia, Maryland, New York, Oklahoma, Vermont, and Virginia have also introduced proposals to ban new data centers. Other proposals do not go as far as complete bans – in those cases, states are looking at proposals to allow neighboring jurisdictions to weigh in on a data center’s approval, to end tax breaks for data centers, and to prevent utility increases for consumers. Other proposals call for data centers to be good neighbors – to work with the local community and to hire local workers. We expect more talk of these proposals as we head deeper into the midterm election season.
Tech companies leaned on to shoulder more utility costs. President Trump is looking to neutralize one part of the issue – higher utility bills – by securing a pledge from major tech companies (Amazon, Meta, Microsoft, Google, Oracle, OpenAI, and SpaceX) to build or pay for their own energy usage and to negotiate separate utility rate structures from the consumer’s rate structure. Still, the pledge is non-binding.
The industry likely needs to be more proactive to mitigate political backlash. If data centers do become a political liability, it will have significant implications for the U.S. growth story and geopolitics, as the U.S. looks to win the AI race with China. The fracking industry undertook a major education campaign to highlight the industry’s benefits: lower gas prices, high-paying U.S. jobs, and improved foreign policy by increasing U.S. energy independence. The AI/data center industry may need to engage in its own education campaign to highlight the benefits of increased innovation and productivity through the use of AI and to try to offset the costs to consumers in order to offset political opposition.
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