Don’t Regulate Data Centers Out of Existence

For years, policymakers and regulators have created a hostile regulatory environment for America’s tech sector. This “techlash” has usually manifested in the form of various proposals targeting these companies’ core products. This includes services like social media, app stores, or online commerce. However, these regulatory efforts have been largely unsuccessful, and now the misguided anti-tech crowd seems to have pivoted toward attacking data centers.

Data centers are part of  the vital infrastructure behind consumer-facing services, and they now find themselves in the crosshairs. By weaponizing permitting and zoning laws, emissions and electricity regulations, and tax hikes, policymakers aim to sabotage operations altogether.

As Americans continue to lead increasingly digital lives and artificial intelligence (AI) development continues to soar, computing power has become a precious resource. This has spurred a need for companies to set up data centers in various regions of the country. These have become necessary infrastructure for the modern digital economy.

State governments across the country were initially enthusiastic about the prospect of hosting data centers within their borders. These facilities often translated into multi-million-dollar land and construction investments and increases in property tax revenues. Some states were perhaps too enthusiastic, offering myriad tax credits and utility rate discounts in what could be considered state-level industrial policy efforts. 

More Energy for Data Centers

Unsurprisingly, data centers’ resource-intensive operation requires a significant amount of energy to run properly. This has given anti-tech politicians the perfect excuse to put forward hostile regulations, as the country struggles with a strained energy grid. Under the guise of protecting the energy grid or limiting emissions, local and state governments have enacted regulations that limit companies’ ability to build new data centers. 

By constraining fuel choices for backup generators, or raising fees for their basic infrastructure, governments have put the squeeze on America’s tech sector. For example, Arizona, Illinois, and Arkansas passed laws that either suspended data center development or restricted where they can be built. Prince William County in Virginia recently passed a tax hike of 70 percent on their computer equipment. 

While a strained electric grid in an increasingly digital economy is a cause for concern, a lot of claims about data centers tend to be hyperbolic or ignorant.

Data centers have an economic incentive to lower their energy consumption as much as possible, as energy costs are one of their main operational costs. Not for nothing, most of the data center operators sign lengthy power-purchase agreements to lock-in energy rates to constrain these costs.

Not only do they push for a lower rate, but they aim to use energy more efficiently, investing millions of dollars into research and development to optimize their energy consumption.

In addition, data centers are a perfect example of an economy of scale producing greater efficiency. It is undoubtedly more energy efficient for hospitals, offices, manufacturers, and other data-intensive industries to contract with data centers versus each running their own server farms.

Some companies have even gone so far as developing self-powered centers. In some cases, these facilities have gone from being energy consumers to being energy providers, sending off excess energy back to the grid.

Ultimately, in an economy that increasingly relies on digital commerce — and will likely become more dependent on AI — purposefully limiting the country’s computing power would be a strategical blunder.

While some politically motivated actors feel compelled to attack the tech industry’s operation by crippling its operating capacity, it will be consumers who will face the costs of diminished computing power. It could also harm the provision of basic government services. If emergency lines like the 911 line are embracing AI to optimize their operations, undermining data center capacity would be an ill-advised policy. 

This all goes without mentioning the security tradeoffs of penalizing data center development and storage in the United States. Government’s should avoid unintentionally incentivizing data centers that serve Americans to move overseas.

Policymakers should not fall prey to the anti-tech rhetoric disguised as environmental and energy concerns that surrounds these data center bills. Instead of stifling the United States’ computing capacity, policymakers should find ways to maximize its energy production and aid these data centers in becoming more energy efficient.

Prioritizing permitting reform, for example, can help them develop the necessary infrastructure to offset their energy consumption in a cost-efficient and timely manner.

Juan Londoño is a senior policy analyst at the Taxpayers Protection Alliance.

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