The emerging climate dilemma of countries: data centers

When Michigan Rep. Joey Andrews describes the pros and cons of attracting data centers to his state – they’re a boon for property taxes but a drag on the electric grid – he ultimately comes back to one point: They can’t be stopped.

“We can’t put this genie back in the bottle,” said Andrews, who is sponsoring legislation to provide data centers with a sales tax exemption. That pitted the Democratic lawmaker, who also owns a solar installation company, against environmental advocates who warn that energy-hungry data centers could overwhelm the state’s renewable energy goals.

But Andrews says that as climate technology becomes increasingly digital, activists need to get used to these kinds of trade-offs.

“Everything we do to fight climate change requires more energy production,” he said. “We must continually increase our energy production to meet the increased energy demand resulting from decarbonization, which, as we know, appears to be counterproductive. But that’s how it is.”

From Lansing to Annapolis to Atlanta, this year the data center sector has introduced favorable policies – such as tax breaks – or thwarted efforts to limit their growth. The growth of the industry is one of the main reasons why U.S. energy demand is expected to increase significantly for the first time in decades. In response, many utilities are making proposals to burn more fossil fuels, sometimes at higher costs to ratepayers.

This is a wake-up call for climate hawks, as well as for some Republicans. However, concerns have not stopped the industry’s development – especially in countries that are trying to take a leading position in the energy transformation. The industry says that while data center companies have ambitious climate goals themselves, it is up to utilities to manage power sector emissions.

“We are in a unique moment,” said Tyler Norris, a former renewable energy executive who now studies energy systems at Duke University. “At the same time, we are seeing an increase in (electricity) load, we are trying to decarbonize the power system and integrate all new technologies. So I think this is probably one of the most complex moments of load growth that we’ve probably ever faced.”

In Michigan, lawmakers are close to passing two tax breaks for data centers, including Andrews’ Act. After environmental groups objected to offering tax breaks without conditions on their climate impact, lawmakers amended the bill to say the Legislature “encourages” such data centers to use renewable energy. But that change hasn’t appeased progressives who want Democrats to tie incentives to binding climate and environmental standards.

Denise Keele, executive director of the Michigan Climate Action Network, said Michigan could fall into the same pattern as other states that have attracted data centers.

“We have seen in other states that these moments of energy and electricity (demand) growth are then used to justify our climate goals,” she said last month at a news conference with other green groups and local officials. The effect, she said, would be “continued reliance on carbon-polluting sources like oil and gas, just when we need to act and end the era of fossil fuels.”

In Maryland, after a data center developer said last year it would cancel a 3 million-square-foot project after state regulators rejected its plan for 168 diesel backup generators, citing their emissions, Democratic Gov. Wes Moore proposed exempting data centers from certain environmental reviews.

Despite opposition from environmental groups such as the Maryland League of Conservation Voters, which noted that the legislation would be the only major climate bill Moore supported this year that would increase emissions, the Legislature passed the bill and Moore signed it last month.

Moore’s spokesman said the governor is committed to modernizing the state’s economy and that data centers will continue to be held to the same emissions standards as other regulated facilities.

“Maryland doesn’t have to choose between giving everyone a cleaner home or preparing for the cyber challenges ahead, and the governor is committed to tackling both,” said Carter Elliott IV, the governor’s senior press secretary.

According to Virginia, home to more than half of the world’s data centers, more than a dozen bills imposing restrictions on data centers have been shelved. Virginia Mercuryand the Joint Legislative Audit Review Committee is investigating the issue.

Dominion Energy, the state’s largest utility, is proposing to add new gas-fired power plants to its long-term plans to meet data center energy needs. In 2022, it noted, the state’s data centers had a peak load of 2.8 gigawatts, or 1.5 times the capacity of Dominion’s North Anna nuclear plant.

“The data center industry is one of the fastest growing industries in the world. “In the Company’s service area, the industry has grown an average of 0.5 GW per year over the past three years,” Dominion wrote. “Since 2019, the Company has connected 75 data centers with a target capacity of 3 GW. Over time, the capacity of these data centers will be increased to achieve this capacity, and the Company expects this increase to materialize over the next 3-5 years.”

A similar story is playing out across the country. A report by consulting firm Grid Strategies shows that in 2023 alone, grid planners almost doubled their load growth forecasts to 38 GW over the next five years. This new growth — driven largely by data centers — poses a risk that “some regions could lose economic development opportunities because the network cannot keep up.”

South Carolina lawmakers this year considered blocking data centers from accessing reduced energy rates, report shows South Carolina’s Daily Newspaperbut this proposal was defeated in a Senate committee after being passed by the House.

And in Georgia, where regulators in April approved a plan to increase gas capacity to meet data center electricity needs, lawmakers passed a bill to freeze tax incentives for data centers for two years.

Republican Gov. Brian Kemp vetoed the bill. Noting that lawmakers recently extended the same tax breaks, the governor said suspending them would undermine business investment.

Republican state lawmakers behind Georgia’s bill say they’re not sure data centers provide enough jobs and economic development to the state to justify their costs.

Rep. Shaw Blackmon, chairman of the Georgia House Ways and Means Committee, said policymakers still need more information to determine whether data centers are a good investment for the state — and the issue is not limited to Georgia.

“Around the world, these discussions are happening in many different places,” Blackmon said.

The data center industry has responded to criticism about its energy needs by pointing out that reducing emissions will rely on data-driven technology – either through direct links such as smart thermometers, or simply by increasing efficiency in other areas of the economy.

Josh Levi, president of the Data Center Coalition, said data centers are among the largest direct buyers of renewable energy contracts and that the industry sees its future in enabling other sectors to decarbonize.

“Many states have recognized that data centers are highly efficient facilities that can save energy and increase productivity for homes, businesses, utilities and other end users,” he said. “While network planning and management is ultimately the role of utilities and network operators in individual states and markets, the data center industry is committed to helping with this as a committed partner.”

Analysts have found that electricity availability is one of the key factors influencing data center location. Utilities would have an easier time meeting increased demand and risk reducing emissions if data centers could increase the flexibility of their energy demand, Duke’s Norris said. This is because electrical systems are designed to respond to the highest demand at short notice, even though such conditions may only occur once a year or less.

However, data center companies are reluctant to accept workload flexibility because it could mean potential failures of IT systems that require reliability.

As a result, Norris said, utilities have proposed combined-cycle gas plants that would lock in significant emissions for years.

“The whole system responds to new loads by adding large amounts of power generated from fossil fuels,” he said. “It’s an emissions problem.”