Empowering the South or Draining It?: Revising Broken Accountability Structures amid the Rise in Demand for New Data Center Construction

Introduction

Many communities across the country, particularly in the South, have become disgruntled with the recent boom in data center construction ushered in by tech firms, utilities, and a slow-to-change policy landscape. This boom has become parasitic in nature, primarily because the danger data centers pose to communities is increasingly disproportionate to the level of community investment that residents see as a result of housing them in their backyards.

Traditionally, a data center has been defined as any physical space or facility that houses critical applications and data (Cisco n.d.). In the past, this IT infrastructure was stored inside the office spaces of the companies using them. However, as the computational costs of software have grown, the space necessary to house these programs and their physical infrastructure has grown, as well. We now find ourselves in an age of artificial intelligence (AI) and Large Language Models, where the computational costs of the software used by millions of users daily has caused tech firms to repurpose or invest in the construction of massive warehouse facilities to house the hardware infrastructure necessary for maintaining and expanding the programs and models that their applications run on.

In addition to the need for more physical space, this increased computational cost also comes with the demand for more energy. These new hyper-scale facilities are home to tens of thousands of constantly running processing units, referred to as AI chips, that can altogether consume upward of 150 megawatts at a single site—enough to power thousands of homes (Wittenberg 2025). It is this incessant energy demand that is the driving force behind the dangers data centers pose to the communities they’re built on top of.

In some cases these dangers come in the form of air pollution, as the massive energy requirements of data centers cannot always be sourced from local utility providers. This shortcoming then forces tech firms to rely on secondary power generation (Lambermont 2025), frequently in the form of nonrenewables, which produce a number of pollutants (IEA 2025). Another environmental risk that data centers pose to communities is water pollution and the hyper-consumption of water—a result of water cooling systems meant to ensure the chips stored in data centers don’t overheat (Yañez-Barnuevo 2025). This is particularly an issue for communities that already rely primarily on one source of clean water, as they especially cannot afford any contamination. Beyond environmental problems, the incessant push to build more data centers has also created financial issues in the form of higher energy bills for everyday consumers (Reed 2025). Opaque permitting processes and a lack of accountability have given local utilities the opportunity to invest in more costly construction of fossil fuel power plants at no extra cost to the tech firms causing the increased energy demand, leaving regular consumers to foot the bill for new power plant construction (Lusiani 2024; Reed 2025).

This brief analyzes the current data center landscape in the American South, touching on both state-level tax exemptions as well as the role of utility companies in managing the increased energy demand generated by data centers. It also addresses the urgency and need for localized and state-level policy solutions due to erosion of federal environmental protections. Additionally, the brief examines organizing and policy efforts in areas of the South that have become ground zero for new data center construction. Finally, it synthesizes a series of policy solutions that communities, policymakers, and organizers can utilize to bring about greater transparency and reform the current, broken accountability structures.

Background

In June 2024, xAI’s Colossus super computer, consisting of 230,000 NVIDIA Graphics Processing Units (GPUs), was announced publicly for the first time, with construction on the facility finishing just two months later (Uyeda 2025; Musk 2025). By the time the project was announced, it had already been made a done deal, as the main parties involved in ushering xAI into the Memphis area—Mayor Paul Young, the Greater Memphis Chamber of Commerce, and Memphis, Gas, Light, and Water (MGLW), the municipal utility serving Memphis and Shelby County—did so with little to no transparency with residents or other public officials. Located in a previously vacated Electrolux warehouse, just three miles away from the residential Boxtown neighborhood, the facility was quickly equipped with 35 unpermitted methane gas turbines to provide secondary power generation in excess to the 50 megawatts allotted by MGLW initially. This extra power generation was deemed necessary as xAI sought to power the facility with 150 megawatts of power, requiring the approval of the Tennessee Valley Authority, a federally owned utility. This approval was granted in November 2024 despite the level of allotted power generation consuming 13 percent of the plant’s total capacity at that time (SELC 2024).

Transparency and energy capacity weren’t the only issues residents of the Boxtown neighborhood and South Memphis had to worry about. Methane gas turbines like the ones equipped at the xAI facility are known to emit toxic pollutants, such as nitrogen oxides (NOx) and formaldehyde. Constant exposure to these pollutants can lead to the development of respiratory illnesses like asthma, bronchitis, and lung cancer (Wittenberg 2025). Despite the fact that federal regulations require pollution controls on stationary gas turbines, none of the 35 turbines on xAI’s Colossus facility were equipped with them. This lack of pollution controls results in the facility producing an estimated 1,200–2,000 tons of NOx annually at the time of writing, making it the largest polluter in Memphis, even exceeding the emissions of the Memphis International Airport (Chow 2025). This issue is especially glaring considering Memphis’s and Shelby County’s status as the asthma capital of the US, maintaining an F rating in air quality for eight consecutive years, and being home to 22 of the top 30 emission sources in the country (ABC24 Memphis 2025).

In addition to the concern of air pollution, the facility also relies on the Memphis sand aquifer, a natural resource that supplies all of Memphis with clean drinking water (Uyeda 2025). This is the result of the facility’s massive diet for fresh water, used to cool its processing chips. After catching wind of this, Protect Our Aquifer, a water advocacy organization based in Memphis dedicated to ensuring clean drinking water for “present and future generations” (Protect Our Aquifer n.d.) began to investigate what the potential consequences of this usage might be. According to executive director Sarah Houston, at the rate the facility is consuming fresh water the public water source could be polluted within 10 to 15 years (Uyeda 2025). 

A coalition including Memphis Community Against Pollution (MCAP), the NAACP, Protect Our Aquifer, the Southern Environmental Law Center (SELC), Young, Gifted & Green, and Tennessee House Representative Justin J. Pearson soon formed to create a multifront battle against the xAI facility (NAACP 2025). As the Colossus situation has evolved, more strategies have been utilized to try and secure wins for the Memphis community. What started as a call for the Shelby County Health Department to deny the permit request for the turbines has turned into a multipronged strategy including the following tactics:

South Memphis and the Boxtown neighborhood aren’t the only communities currently experiencing data center troubles in the South, which has effectively become ground zero for new data center construction. Northern Virginia has long been known as the data center capital of the world, home to more than 300 data centers (Benforado 2024); however, states like Georgia, Tennessee, Texas, and Louisiana—soon to be home to Meta’s “Manhattan-size” Hyperion data center (Capps 2025)—are also now on the frontlines of this growth.

This Southern data center boom is a result of the cheap and expansive land the South offers, generous subsidies offered at state and local levels, and generally lower industrial energy costs (SELC n.d.). Utilities, tech firms, and local and state governments have aggressively pushed—at the expense of communities and residents—for a rapid expansion of data center construction in the South without much concern for the environmental, public health, and consumer financial repercussions it may pose.

Policy Analysis

Understanding the Tax Exemption Landscape for Data Centers

One of the foremost reasons the South has become home to many of these new hyper-scale data centers is state-level subsidies and tax breaks offered to these facilities. Take Virginia for instance, which began offering its sales and use tax exemption in 2008 for “computer equipment or enabling software purchased or leased for the processing, storage, retrieval, or communication of data” (Burns 2024), which includes equipment ranging from routers and computer chips all the way to backup generators. While the incentive requires job creation and capital investment, firms are allowed to have multiple facilities and still qualify for the exemption, so long as the capital investment and employees are within the same locality. This limitation inadvertently incentivizes already qualifying firms to concentrate future development in the same localities they exist in—allowing them to not have to meet the same requirements in another area, potentially decreasing investment in other localities in the state and adding onto the already existing harm data centers pose in that same locality. Similar tax exemptions exist in many other states like Alabama (Data Processing Centers 2012), Georgia (Sales and Use Tax 2022), Mississippi (Bonds and Economic Development 2010), and Tennessee, differing slightly only in the job creation and capital investment minimums, and in some states like Texas an additional size requirement of at least 100,000 square feet (Relating to the Temporary 2013). Business-friendly incentives like these attract large capital investments to these regions; however without conditions that reflect the latest knowledge of the evolving cloud computing and AI landscape, they can begin to lose their effectiveness and even backfire in the original goals they set out to achieve.

Texas is one of the most prominent examples of these subsidies backfiring amid the evolving landscape. Due to its 2013 data center tax exemption, the state is losing out on an estimated $1 billion in tax revenue for the 2025 fiscal year, and a projected $1.7 billion in the 2030 fiscal year (Hegar 2025). A sharp increase from 2015, just two years after the exemption was first passed where the subsidy only accounted for $9.2 million and was projected to account for $19.4 million in 2020 (Hegar 2015). While Texas leads the pack in spending for data center tax exemptions, Virginia, Georgia, and Tennessee follow closely behind, each losing out on more than $100 million in tax revenue annually (Leroy and Tarczynska 2025).

Part of the reason the price of these exemptions has ballooned is the change in the use of data centers. Before the rise of LLMs, data centers were primarily used to host cloud computing services, which can be defined as the “on-demand availability of computing resources (such as storage and infrastructure), as services over the internet” (Google 2024). These previous services were much less intensive than the LLMs being released today. This has become doubly troubling as these models not only require very expensive hardware to accommodate the compute power necessary to run them—with NVIDIA GPUs being amongst the most popular costing upward of $27,000 each (TRG Datacenters 2024)—but also because the rate at which software is progressing is outpacing the hardware running it.

When asked about making data centers more sustainable going forward, Dr. Eric Seabron, assistant professor in the department of electrical engineering at Howard University, said this: 

And while large tech firms are aware of this hardware lag, their main focus is not on committing more resources to research and creating new paradigms, but rather on increasing the scale of known models with an “if it ain’t broke, don’t fix it” mentality. This is not to say that things aren’t broken: For the communities exposed to a higher risk of respiratory illness as a result of new fossil fuel plant construction, things are broken. For the communities experiencing higher energy bills, because they are paying to subsidize industrial energy costs for data centers, things are broken. And for the communities scared the supply of fresh water they rely on may run dry or become unusable, things are broken, too.

The Role of Utilities and Tech Firms in Managing Energy Demand and Capacity

While the conversation surrounding data centers and the impact they have on surrounding communities environmentally and financially is relatively new, one party that tends to skirt responsibility for the role they play in this process is the very power utilities that supply energy to these centers, and often serve as gatekeepers to their construction. In a brief entitled Entrenched Power: How Shareholder-Owned Electric Utilities Hinder the Clean Energy Transition, Niko Lusiani, former director of the corporate power program at the Roosevelt Institute, explores the role shareholder-owned electric utilities play in hindering the national energy transition, noting how the massive increase in energy demand that new data center construction has created has given utility companies an excuse to continue building out polluting infrastructure to address the demand rather than working toward net zero goals. Specifically, Lusiani argues that the surge in electricity demand from AI and data center construction is colliding with an incumbent utility business model that profits from building more capital‑intensive nonrenewable infrastructure. Resulting in many utilities using the demand spike as a justification to double down on polluting power plant construction and transmission bottlenecks rather than accelerating the renewable transition.

Not only is there concern to be raised over backtracking on sustainability goals and what that means for the environment and public health, but there is also the added reality of increased energy rates for residential energy consumers as expenses are passed onto them. Instead of lacking the ability to use sustainable energy to meet the increased demand, the reality is that the existing incentive structure favors the construction of nonrenewable plants (generally having low initial investment costs and higher operating costs) over renewables (which tend to be the opposite). As of right now, utilities are both “rewarded for making additional capital investments” (Lusiani 2024) and in no way penalized for increasing their operational costs, as they’re permitted by regulators to pass them onto consumers. This means without additional oversight or changes to the incentive structure, addressing this increased demand with investment in renewables in a nonstarter, especially to incumbent- and shareholder-owned utilities that primarily seek to maintain their status and increase returns.

This is not playing out solely in theory. In reality, this might look like utilities using this increased demand from data centers to justify the construction of new fossil fuel plants like Georgia Power, which has stated “more than 90 percent of its projected ‘large load’ growth comes from data centers,” expressing its intention to bring more fossil fuel plants online (SELC n.d.), or like utilities slowing the connection of renewable projects to transmission lines like Pepco, the investor-owned utility serving the DC metro area, that was sued by the DC attorney general for allegedly “systematically delaying community solar projects” (Lusiani 2024). These examples speak to the need for more accountability. As of right now, communities like that of predominantly Black South Memphis, and rural Georgia and Louisiana, are effectively paying for their own suffering. These communities are confronting the brunt of both increased health and environmental risks as a result of new fossil fuel plant construction, and the financial burden of increased energy rates spurred by the operating costs of the same facilities poisoning them. The current incentive and accountability structures must be revised to ensure that all people can live in healthy communities and within a more equitable energy economy.

Environmental Justice and Eroding Protections

The prospects for federal legislation adding guardrails to AI and data centers has become increasingly grim. This situation stems not only from bipartisan support for ramping up AI development (Johnson and Jeffries 2024), but also from the erosion of environmental safeguards and investments under this current administration (EPA 2025a). This erosion has come in many forms, ranging from ending certain subsidies and tax credits for renewable energy projects (EO 14315) and a later-removed 10-year pause on state AI regulation (Samp et al. 2025) to the revocation of several executive orders concerning environmental justice (Jones 2025) and reorganizing the Environmental Protection Agency (EPA) into a deregulatory body serving primarily the whims of oil and gas corporations at the expense of public health (APHA 2025). Among the most concerning of these recent actions from the federal government has been the swearing in of four executive officers of major tech firms leading AI development in the US as lieutenant colonels of the US Army Reserves (NPR 2025), and the EPA announced a “Reconsideration of Burdensome Greenhouse Gas Reporting Program” (EPA 2025b). Given where we find ourselves, it is not likely that either the White House or Congress will soon rein in the power tech companies and utility providers have been wielding to expand data center construction. However, analyzing the effects of these moves to erode protections will prove important in deciding how organizers can best move forward to effect change.

For example, there has been concern over what the sunset to renewable energy tax credits, such as the Clean Electricity Investment (CEIC) and Production Credits (CEPC), will mean when tech companies are looking for secondary power sources to supply their data centers. Under the reconciliation bill, both credits are set to be repealed for projects placed into service after December 31, 2027, and phase out completely by 2035 for all projects (Jacobson and Woody 2025). Prior to the passage of the reconciliation, the CEIC provided a 6 percent base tax credit that could be increased beyond 50 percent given the project’s adherence to specified requirements (IRS n.d.a) and the CEPC “a base rate of 0.3 cents per kilowatt hour of electricity produced at a qualified facility” (IRS n.d.b). The International Energy Agency, an international organization with the mission of working with “governments and industry to shape a secure and sustainable energy future for all” (IEA n.d.), published a report showing that solar and wind projects accounted for 24 percent of the share of electricity sources for data centers in the US, followed only by nonrenewables, which account for 40 percent of the share (IEA 2025). However, without the incentive of the aforementioned tax credits, it is unknown how much the share of energy provided by renewable sources will change over time. It is not unlikely that some companies may try to employ strategies similar to that of xAI in South Memphis: betting on overlooked communities to not garner enough attention to punish them for supplying their energy needs with polluting infrastructure.

If either the SELC litigation claiming Clean Air Act violations or the appeal to the permit issued by the Shelby County Health Department against xAI are unsuccessful, it may set an undesirable precedent at the federal level. In an interview, LaTricea Adams, founder and CEO of Young, Gifted & Green, spoke on why the fight against xAI has been very local in nature and what the appeal process has looked like, saying,

Taking all of this into account, it becomes especially important to look at what can be done to remedy some of these ills at state and local levels, where the climate may be less hostile than at the federal level and the ramifications of losing don’t risk further backsliding at a national level that may take years to recover from.

Policy Proposal

The recent data center boom has made the contradictions in current energy and tech policies too glaring to ignore, exposing the urgent need to reform accountability structures, curb corporate power, and build a more sustainable, healthier, and equitable energy landscape. The current system—marked by unaccountable monopoly utilities, outdated data center subsidies, and environmental policy rollbacks that shield bad actors—is failing many communities in the South and across the US. If addressed with urgency, this moment presents the opportunity to spark a sea change, laying a solid foundation for tech and energy policy going forward in the age of AI and emerging technologies. This change requires all involved parties to commit to both ensuring transparency at every step and holding each other accountable to the communities they serve and commitments they claim to uphold.

Newer Models of Transparency

Communities must advocate for and secure citizen advisory boards that hold decision-making power for the utilities that supply their region. Without advisory boards, utilities will continue to exercise their power to raise rates, build more polluting infrastructure, and slow the energy transition where sustainability may be more costly for them under our current structure. 

City councils and governing bodies over public utilities must maintain transparency to their constituents, notifying constituents of what projects are being approved that may increase rates or lead to the construction of more polluting infrastructure in their service area.

Communities must secure community benefits agreements and pressure tech firms, utilities, and all large polluters to continue to report their annual greenhouse gas emissions, should that requirement be axed by the EPA at the federal level. Without these reports legal battles will become increasingly more difficult to overcome, making it much easier for polluters to come into already suffocated regions and dump their externalities on marginalized and overlooked communities.

No more backroom deals. Communities must advocate for their representatives to pass legislation requiring utilities to publicize deals being made prior to signing with hyper-users that may increase rates or take up more than 5 percent of a utility’s capacity.

Publicize losses. States must begin to report how much unrealized tax revenue is being lost through data center tax exemptions. Incidence reports are a necessary form of transparency that allow for more effective and targeted policy solutions in the future.

Revising Accountability Structures

Tech firms and hyper-users must pay their fair share. As things stand, many hyper-users around the country are benefiting from both tax exempt electricity and low industrial energy costs. This is creating an inequitable energy landscape where hyper-users stand to gobble up large shares of a utility’s energy capacity at a reduced rate and spur the construction of new costly nonrenewable projects to supply this new demand. Rather than tech firms and hyper-users footing the bill for the increased demand they account for, the cost is passed onto residential consumers in the form of higher rates and more pollution.

Tech firms must do their due diligence and stipulate their contracts on utilities’ agreements to not expand polluting infrastructure. Large tech firms like Google, Meta, and Amazon, must take their net zero goals seriously and put their stated values into practice (Google n.d.; Meta n.d.; Amazon n.d.). Even if, unlike xAI, secondary power generation is supplied using renewable energy sources, without stipulating their contracts with utilities to supply their facilities through renewable sources, they are still responsible for those emissions and delaying the energy transition.

Tech firms must look for alternative ways to supply their water demand, such as greywater treatment facilities. Gaining and maintaining access to clean drinking water has long been and remains a fight for many southern Black and rural communities. Polluting the sources of clean drinking water these communities do have access to for the sake of convenience and cost cutting cannot be an option. 

Local and state representatives must push for legislation that requires secondary energy sources to be supplied by renewables. In the face of many environmental policies being reversed and reinterpreted at the federal level, it is important that state and local representatives do their part to reinforce their constituents’ environmental protections and health.

Local and state representatives must revise data center tax exemption policies to both add caps on how much firms claim exemptions on and stipulate qualification on a commitment to sustainable sourcing of energy and water, with accountability for falling short.

Local and state representatives must revise utility incentive structures to make renewable and sustainable options more attractive, and support the extension of transmission lines to ensure these renewable sources have a chance to connect to the grid.

Conclusion

While free market proponents frequently claim that regulation stifles innovation, we are seeing the opposite play out in today’s data center landscape. Left without guardrails, tech firms have and will likely continue to increase the scale of these facilities with little to no regard for sustainability. Not only will prioritizing sustainability, environmental justice, and public health benefit the communities currently being harmed by this moment’s data center boom, but it will also force these firms to think of new ways to build these models and tailor them to the current hardware, rather than attempting to build massive all-in-one models that continue to fail in performance and sustainability.

Right now is the moment to shape the future of emerging technologies through policy; it would be prescient to ensure that this opportunity is not wasted. Reforming the data center tax exemption landscape is necessary to both limit the amount of subsidized tax dollars firms can claim and to better regulate which companies may enter and set up shop in constituencies’ backyards. Broader changes to the incentive structure for utilities is also necessary. If a true energy transition is to ever be realized, building renewable options and scaling back on fossil fuels and polluting infrastructure must be easier than the current reality. Additionally, local and state elected representatives must reinforce environmental protections for the communities they govern. In a moment where the federal administration is rolling back and reinterpreting environmental policy, it is up to these subnational leaders to safeguard their constituents from parasitic actors seeking to use their land and resources for profit while simultaneously exporting their externalities upon marginalized communities. Finally, organizers and elected officials must hold large tech firms accountable to their promises and commitments to net zero goals.