Data Centers on the Move: Policy and Environmental Consequences

• In Event: Assessing data center policy design and impacts

Abstract

The rapid expansion of data centers, driven by cloud computing and artificial intelligence (AI) has introduced a new class of energy- and resource-intensive infrastructure with potentially significant environmental implications. In response, many U.S. states have introduced policies to attract data centers, such as tax incentives and support for construction. At the same time, data centers are expected to continuously increase electricity demand, raising concerns about their environmental impacts. In particular, data centers often rely on backup generators that require air permits due to emissions. This creates a policy challenge: states want to attract data centers for economic benefits, but they also need to maintain environmental regulation. As a result, environmental oversight may vary across states.

This paper provides the first integrated empirical analysis of data centers by linking state policy, facility siting, and environmental permitting using three datasets. First, we build a panel dataset from 2015 to 2025 that tracks the development status of data centers using high-resolution satellite imagery. Second, we use state-level policy data from the National Caucus of Environmental Legislators (NCEL), which captures differences in legislation related to data centers. Third, we use an air permit dataset from Business Insider that includes information on electrical capacity, permit timing, and environmental justice indicators. These datasets are linked together to connect individual data centers with their state policies and regulatory conditions.

We use a panel fixed-effects and event-study design to examine how policy adoption and permitting relate to data center development. Preliminary results show that new data center investments from large technology firms are shifting away from states with climate and renewable energy goals toward states with traditionally regulated, vertically integrated electricity markets. In addition, larger permitted capacity is associated with a higher probability of facility expansion, suggesting that air permitting is closely linked to the scale of development.

These findings indicate that state policy environments may shape the geographic distribution and environmental footprint of data centers. They raise concerns about uneven environmental outcomes, particularly if data center growth concentrates in regions with more carbon-intensive energy systems. Ongoing work will strengthen causal identification, examine distributional impacts using environmental justice measures, and incorporate improved proxies for electricity use and emissions.

Authors

• Yuetong Zhang, University of North Carolina at Chapel Hill
  Presenting Author

• Katherine Burley Farr, University of North Carolina at Chapel Hill
  Non-Presenting Co-Author

• ANGEL HSU, University of North Carolina at Chapel Hill
  Non-Presenting Co-Author