HWG LLP Energy Advisory
By: Sean A. Lev, John A. Hodges, and Jason E. Neal
Data centers continue to proliferate in the United States and abroad, largely as a result of the increasing demands of new artificial intelligence technologies (AI). That proliferation, and the higher energy use that comes with it, have fueled demands for greater regulation. The International Energy Agency (IEA), for instance, has stated that “[u]pdated regulations and technological improvements, including on efficiency, will be crucial to moderate the surge in energy consumption from data centres.”1 This advisory reviews recent U.S. regulatory developments. It can be usefully read in conjunction with our July 2023 advisory on energy efficiency regulation of data centers.2
Industry should be vigilant on developments and take advantage of opportunities to help shape future rules. These include, for example, a just-issued Request for Comments by the National Telecommunications and Information Administration (NTIA), in coordination with the Department of Energy (DOE).3 It requests comments on “the challenges surrounding data center growth, resilience and security in the United States amidst a surge of computing power demand due to the development of critical and emerging technologies.”4 It seeks input on the potential risks, benefits, and implications of the anticipated growth in the data center sector, and the appropriate policy and regulatory approaches to foster sustainable, resilient and secure data center growth. Comments are due by November 4, 2024.
Overview
Energy Needs of Data Centers. Data centers play an essential role in providing cloud computing and storage services for both personal and business consumers, as well as in supporting more intensive online enterprises like cryptocurrencies. They also require a large and uninterrupted supply of electricity to support their infrastructure and maintain and cool the buildings where their servers are housed. According to IEA, data centers globally consumed an estimated 460 terawatt-hours (TWh) in 2022 and could reach more than 1,000 TWh in 2026—roughly equivalent to the electricity consumption of Japan.5
In 2023, data centers comprised about 4% of U.S. total electricity load.6 That could grow to between 4.6% and 9.1% by 2030, depending largely on how heavily generative AI impacts data center expansion and energy use.7 The Federal Energy Regulatory Commission projects that, between 2023 and 2024 alone, the power consumption associated with U.S. data centers will increase by 10%, from 19 gigawatts (GW) to 21 GW.8
This demand is not, and will not be, evenly distributed across the country. Today, about 80% of data center energy use is concentrated in fifteen states. For Virginia, the state with the most data centers, the Electric Power Research Institute (EPRI) projects that by 2030, data centers could account for 36% or more of the state’s electricity use.9
Energy Impact of AI. Much of the difficulty estimating data centers’ growth and their energy impact comes from uncertainty as to the future trajectory of AI and large language models (LLMs). AI and LLMs fuel data center energy consumption because of the amount of power needed both to develop and to train increasingly sophisticated models.10 In this regard, researchers have found that the cost of computational power used to train the most powerful AI models doubles every nine months.11
Energy Strategies for Data Centers. There are a number of strategies being considered to meet the increasing demand for data center storage and power. These include increasing the energy efficiency of equipment (both computational and cooling), drawing power from renewable energy sources, and reducing inefficiencies within the algorithms themselves.12 More broadly, advances in chip power and efficiency can potentially enhance data center efficiency.13 Some also argue that AI can itself be used to streamline data center operations and increase the efficiency of the systems on which they rely by coordinating power use with power demand, predicting failures, and improving data security.14
Some data centers have also tried to reduce energy demand by leveraging liquid cooling.15 This strategy can present its own challenges—especially in drought-prone locations like the American West—given the amount of water necessary to effectively cool servers by this method.16 Additionally, according to one executive focused on sustainability in the data center sector, over 95% of the world’s existing data center fleet is not ready for liquid cooling.17 Focusing on renewables can also in some instances present issues because of variation in their capacity to meet the power needs of high-speed computing in data centers.18
Another emerging issue for data centers is determining where and how to build them. More, smaller data centers, dispersed geographically, can prevent stressing of the energy grid in any one spot.19 A data center’s location can also impact its access to renewable energy sources, its cooling requirements, and its ability to reuse excess heat energy.20 And designing data centers to consolidate equipment rooms, minimize the mixing of warm and cool air, and use efficient power distribution systems can all improve a data center’s efficiency.21
Federal Programs
NTIA in Coordination with DOE. NTIA, in coordination with DOE, has just issued a Request for Comments regarding data centers.22 Comments are due by November 4, 2024.
NTIA requests comments on the challenges surrounding data center growth, resilience, and security in the United States amidst a surge of computing power demand due to the development of critical and emerging technologies. This request focuses on identifying opportunities for the U.S. government to improve data centers’ market development, supply chain resilience, and data security. NTIA will rely on these comments, along with other public engagements on this topic, to draft and issue a public report capturing economic and security policy considerations and policy recommendations for fostering safe, secure, and sustainable data center growth.23
NTIA’s Request for Comment states that, given the significant energy needs of data centers, DOE has a strong interest in understanding and supporting growth in the data center sector. DOE may use the responses from the request to inform the development of strategies, programs, and other actions to support deployment of technologies and solutions to address data center energy needs.24
DOE. DOE currently does not have mandatory energy efficiency requirements for privately owned data centers, but it does have mandatory standards that impact data centers. These include standards for commercial and industrial air conditioning equipment.25 There is a current rulemaking on proposed standards for these products, with opportunity for public comment.26 There are also standards for distribution transformers.27 DOE has recently adopted amended standards for distribution transformers, with compliance required on and after April 23, 2029.28
Energy Act of 2020. The Energy Act of 2020 (Energy Act) includes several measures related to data center energy efficiency. These include establishing an open data initiative on energy use at federally owned and operated data centers; creating a new metric to evaluate data center energy efficiency; and developing a strategy to maintain, purchase, and use energy efficient and energy saving information technologies at federal agencies.29
The Energy Act mandates that DOE produce an updated version of a 2016 Lawrence Berkeley National Laboratory study on the energy use of data centers in the United States.30 That study should be released this year, and its initial results were presented at the Data Center World conference in April.31 Those preliminary findings discussed the past success of energy efficiency gains at accommodating heightened data demands, but noted the significant and still unpredictable impact of AI on energy requirements.32 The federal Data Center Energy Practitioner training program is now run pursuant to the Energy Act, and federal agencies must consider having their data centers evaluated once every four years by energy practitioners certified pursuant to the program.33
Energy Star. As of September 5, 2024, only 270 of 5,381 U.S data centers were certified under Energy Star,34 a voluntary joint program of DOE and the Environmental Protection Agency (EPA) to promote energy efficiency.35 To be Energy Star-certified, a data center must perform better than at least 75% of similar buildings nationwide, as indicated by Energy Star’s energy performance scale.36 For a data center, this score takes into account a variety of factors, including the efficiency of its equipment, the structure of its building, and its overall energy use.37 The program also identifies other areas for data centers to prioritize, including using renewable energy, altering management policies, and consolidating in underutilized areas.38
There is also Energy Star certification for individual pieces of data center equipment, including enterprise servers, uninterruptible power supplies, data center storage, and large network equipment.39 After nearly two years of revisions to update the standards to reflect the efficiency and capacity of present-day equipment, the computer server Energy Star certification requirements switched to Version 4.0 on January 12, 2024; all servers manufactured after that date must meet the new standards to bear the Energy Star mark.40 Energy Star estimates that under these new standards, certified computer servers “will use, on average, approximately 38% less energy than standard computer[s].”41
State Initiatives
Much of the emerging policy on data centers occurs at the state level. Policy approaches taken to date vary from promoting data center growth to restricting it—sometimes within the same state.42 Some regulation also occurs on a local level, particularly as it relates to the permitting and approval processes for development.
Virginia. Home to the most data centers in the United States, Virginia has seen a host of data center legislative initiatives recently: more than forty proposed bills over the last two years,43 and more than a dozen in the most recent session alone.44 These bills have ranged from limiting areas where data centers can be built, to imposing energy and water use disclosure requirements, to requiring impact studies.45 On a local level, Loudon County, in Northern Virginia, has also begun the process of revising its zoning guides to require county approval before a data center can be built. Final approval of this revision will take until at least 2025.46 Even counties with fewer data centers, like Fairfax, are pursuing zoning changes to regulate their impact on their communities.47
The Virginia legislature has also ordered that a study on data centers be done. That study has been ongoing since December 2023 and is expected to be completed this year.48 The study has delayed the passage of many bills, with legislators choosing to postpone considering proposals regarding data centers until it is completed.49 One bill that did make it past the House was H.B. 338, which would have allowed a locality to assess the effect of a proposed data center on water usage and carbon emissions before approving it. It did not come to a vote in the Senate but was continued for next year’s session.50
Maryland. Close to the data center-rich area of Northern Virginia, but with fewer data centers within its own state boundaries, Maryland successfully passed a bill this year to attract data centers, rather than restrict them. The measure, S.B. 474, went into effect on July 1, 2024.51 It removes the certification step currently required for entities like data centers to install backup generators.52 This change comes in the wake of the Maryland Public Service Commission denying the necessary certificates for the backup generators for a planned data center project last year.53 The bill was able to overcome opposition from some environmental groups by including a provision that 15% of income tax attributable to data centers would be distributed to a Strategic Energy Investment Fund that the bill also creates to fund renewables and climate programs.54
Another Maryland data center bill (S.B. 861) seeks to regulate rather than promote data centers. It is currently in committee.55 It would require “high-energy-use facilities” (defined to generally mean data centers, cryptocurrency operations, and cannabis farms) to achieve various greenhouse gas emission reduction targets by certain years, as well as prescribe the ways by which they can achieve these reductions.56
California. S.B. 1298, a similar bill to the one that became law in Maryland, has passed the California Senate, and is moving through the Assembly. It would make it easier for data centers to employ backup generators, though the California version includes stipulations on the use of technology for pollution management and the hiring of skilled labor to build the generating facility.57
Georgia. Georgia, which has more than fifty data centers, passed a piece of data center legislation, H.B. 1192, this past session,58 but it was vetoed by Governor Brian Kemp (R) on May 7, 2024.59 H.B. 1192 would have paused tax exemptions for new data centers in the state. It also would have created a Special Commission on Data Center Energy Planning, which would have reviewed data center energy and water use, available mitigation technologies, and emerging forces like the impact of AI to make recommendations on the future development of data centers in the state.60
South Carolina. South Carolina currently has a bill, H. 5118, in conference committee that, as passed by the House, would prevent electrical utilities from providing reduced electric rates to data centers until 2034;61 the version passed by the Senate omits this provision.62 Another bill, H. 4087, was initially passed by the House without any mention of data centers, but was revised by the Senate to include an amendment phasing out tax breaks for data centers over the next year.63 However, the House returned the bill to conference committee with the data center provision removed, and the provision did not make it into the final version signed by Governor Henry McMaster (R).64
Michigan. In May, the Michigan Senate passed S.B. 237; it is now being considered by the House. The bill would modify the state tax code to create an exemption from the use tax for equipment employed in operating or constructing data centers that could be issued through 2029 and would last through 2050 (an extension from the first version of the bill’s 2035). Exemptions would be dependent on job creation and investment. The bill “encourages,” but does not require, data centers claiming an exemption to use renewables, pursue energy efficiency, and conserve water. However, it would require participating data centers to attain a certification under at least one of a list of green building standards, including Energy Star, within three years after operations begin.65
Massachusetts. In March, a Massachusetts House committee favorably reported H. 2792, a bill that, like the Michigan bill, would carve out sales and use tax exemptions for data centers. However, the proposed Massachusetts legislation includes fewer specifications on job creation and environmental impact requirements. It also contains fewer date restrictions, stipulating only that the exemption would last for twenty years after the year of the data center’s certification.66
Louisiana. On June 19, Louisiana’s governor, Jeff Landry (R), signed H.B. 827 into law.67 This act provides rebates on sales and use taxes on data center equipment and materials for twenty years, with an option to extend for ten more, if a data center will create at least fifty jobs and plans to invest at least $200 million in Louisiana between July 1, 2024, and July 1, 2029.68
Conclusion
Data center expansion, driven in large part by the increasing use demands of the rapidly spreading AI and LLM technologies, is happening across the globe. As data centers grow, they create significant energy and water requirements, prompting a need for energy-efficient equipment, effective renewable energy sources, and strategies to streamline functions and reduce impact. These dynamics are fertile ground for policies and programs prescribing or recommending both what data centers may do and how they may do it. In the United States, these developments are happening at the federal, state, and local levels. Industry needs to follow these fast-moving developments and take advantage of opportunities to participate in the shaping of initiatives, including the current NTIA/DOE Request for Comments.
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For more information on HWG LLP’s energy practice, please contact Sean A. Lev, John A. Hodges, or Jason E. Neal. Sean Lev has served as Acting General Counsel and Deputy General Counsel for Environment and Nuclear Programs at DOE.
Abigail T. Phillips, a Legal Analyst at HWG LLP, contributed to the preparation of this advisory under the supervision of John Hodges.
This advisory is not intended to convey legal advice. It is circulated publicly as a convenience and does not reflect or create an attorney-client relationship.
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1 International Energy Agency, Electricity 2024: Analysis and Forecast to 2026 at 8 (2024), https://iea.blob.core.windows.net/assets/6b2fd954-2017-408e-bf08-952fdd62118a/Electricity2024-Analysisandforecastto2026.pdf.
2 John A. Hodges, Energy Efficiency to Tame Data Center Energy Use, HWG LLP, https://hwglaw.com/wp-content/uploads/2023/07/HWG-Energy-Advisory-July-31-2023.pdf.
3 NTIA, Request for Comments on Bolstering Data Center Growth, Resilience, and Security, Notice and Request for Comment, 89 Fed. Reg. 71890 (Sept. 4, 2024).
6 Office of Policy, Clean Energy Resources to Meet Data Center Electricity Demand, Department of Energy (Aug. 12, 2024), https://www.energy.gov/policy/articles/clean-energy-resources-meet-data-center-electricity-demand#:~:text=The%20Electric%20Power%20Research%20Institute,of%20total%20load%20in%202023.
7 Electric Power Research Institute, Powering Intelligence – Analyzing Artificial Intelligence and Data Center Energy Consumption 4–5 (2024), https://www.epri.com/research/products/3002028905.
8 Federal Energy Regulatory Commission, Summer Energy Market and Electric Reliability Assessment 46 (2024), https://www.ferc.gov/news-events/news/report-2024-summer-energy-market-and-electric-reliability-assessment.
11 Will Henshall, The Billion-Dollar Price Tag of Building AI, TIME (June 3, 2024), https://time.com/6984292/cost-artificial-intelligence-compute-epoch-report/.
12 EPRI, supra note 7, at 18–19.
13 See, e.g., Jennifer L, Nvidia’s Record Earnings Overshadow New Standard in Chip Energy Efficiency, Carbon Credits (May 28, 2024), https://carboncredits.com/nvidias-record-breaking-growth-amid-ai-revolution-carbon-footprint/; Dion Harris, Sustainable Strides: How AI and Accelerated Computing Are Driving Energy Efficiency, NVIDIA (July 22, 2024), https://blogs.nvidia.com/blog/accelerated-ai-energy-efficiency/.
14 How Are AI Demands Affecting Data Center’s Growth?, TRG Datacenters, https://tinyurl.com/TRGHowAreAI (last visited Aug. 6, 2024).
15 Liquid Cooling in Data Centers: A Revolution in Energy Efficiency, Data 4 (June 10, 2024), https://www.data4group.com/en/news-data4/liquid-cooling-in-data-centers-a-revolution-in-energy-efficiency/.
16 Shannon Osaka, A New Front in the Water Wars: Your Internet Use, The Washington Post (Apr. 25, 2023), https://www.washingtonpost.com/climate-environment/2023/04/25/data-centers-drought-water-use/.
17 Amber Jackson, The Data Centre Revolution Demands Sustainable AI, Data Centre Magazine (July 20, 2024), https://datacentremagazine.com/critical-environments/the-data-centre-revolution-demands-sustainable-ai.
18 Andrew R. Chow, How AI Is Fueling a Boom in Data Centers and Energy Demand, TIME (June 12, 2024), https://time.com/6987773/ai-data-centers-energy-usage-climate-change/.
19 AI Supercharges Data Centre Energy Use-Straining the Grid and Slowing Sustainability Efforts, The Economic Times, https://economictimes.indiatimes.com/tech/artificial-intelligence/ai-supercharges-data-centre-energy-use-straining-the-grid-and-slowing-sustainability-efforts/articleshow/111712140.cms?from=mdr (July 13, 2024).
20 Joshua Machat, Why the Digital World Needs Sustainable Architecture: An Interview with Marina Otero, Harvard Graduate School of Design (Apr. 27, 2023), https://www.gsd.harvard.edu/2023/04/why-the-digital-world-needs-sustainable-architecture-an-interview-with-marina-otero/.
21 Otto Van Geet & David Sickinger, Best Practices Guide for Energy-Efficient Data Center Design, Federal Energy Management Program (July 2024), https://www.energy.gov/sites/default/files/2024-07/best-practice-guide-data-center-design.pdf.
25 10 C.F.R. §§ 431.91–431.97.
26 DOE, Office of Energy Efficiency and Renewable Energy, Energy Conservation Program: Energy Conservation Standards for Air-Cooled Commercial Package Air Conditioners and Heat Pumps, Notice of Proposed Rulemaking (NOPR), 89 Fed. Reg. 43770 (May 20, 2024). In this NOPR, DOE is proposing amended standards identical to those set forth in a direct final rule (DFR) published in the same issue of the Federal Register. DOE, Office of Energy Efficiency and Renewable Energy, Energy Conservation Program: Energy Conservation Standards for Air-Cooled Commercial Package Air Conditioners and Heat Pumps, Direct Final Rule, 89 Fed. Reg. 44052 (May 20, 2024). Comments are due by September 9, 2024 (filings are permissible even after the formal comment period has closed). If DOE receives adverse comment and determines that such comment may provide a reasonable basis for withdrawal of the DFR, DOE will publish a notification of withdrawal and will proceed with the proposed rule.
27 10 C.F.R. §§ 431.191–431.196.
28 DOE, Office of Energy Efficiency and Renewable Energy, Energy Conservation Program: Energy Conservation Standards for Distribution Transformers, Final Rule, 89 Fed. Reg. 29834 (Apr. 22, 2024).
29 Energy Act of 2020, Pub. L. 116-260, 134 Stat 2418, 2426–28 (2020).
31 2024 Report to Congress on U.S. Data Center Energy Use, Data Center World, https://schedule.datacenterworld. com/session/2024-report-to-congress-on-us-data-center-energy-use-/902681 (last visited Aug. 28, 2024).
32 Draw Robb, Will Data Centers Get Good Marks in New Energy Report to Congress?, Data Center Knowledge (Apr. 23, 2024), https://www.datacenterknowledge.com/energy-power-supply/will-data-centers-get-good-marks-in-new-energy-report-to-congress-.
33 Data Center Energy Practitioner Training, Center of Expertise for Energy Efficiency in Data Centers, https://datacenters.lbl.gov/dcep (last visited Aug. 28, 2024).
34 ENERGY STAR Certified Data Centers, Energy Star, https://www.energystar.gov/buildings/certified-data-centers (last visited Sept. 5, 2024); Frank Holmes, Data Centers Are Driving An Electricity Demand Surge From AI Platforms Like ChatGPT, Forbes (June 3, 2024), https://www.forbes.com/sites/greatspeculations/2024/06/03/data-centers-are-driving-an-electricity-demand-surge-from-ai-platforms-like-chatgpt/?sh=4042966bfb23.
35 42 U.S.C. § 6294a.
36 Glossary, Energy Star Portfolio Manager, https://tinyurl.com/GlossaryEnergyStar (last visited Aug. 6, 2024).
37 ENERGY STAR Score for Data Centers in the United States, Energy Star Portfolio Manager (Aug. 2018), https://www.energystar.gov/sites/default/files/tools/Data_Center_August_2018_EN_508.pdf.
38 16 More Ways to Cut Energy Waste in the Data Center, Energy Star https://www. energystar.gov/products/data_center_equipment/16-more-ways-cut-energy-waste-data-center (last visited Aug. 6, 2024).
39 Data Center Equipment, Energy Star https://www.energystar.gov/products/data_center_equipment (last visited Aug. 6, 2024).
40 Ryan Fogle, Version 4.0 ENERGY STAR Computer Server Specification Cover Memo (Apr. 12, 2023) https://tinyurl.com/EnergyStarCompServer; Version 4.0 Computer Servers Discussion Guide Webinar, Environmental Protection Agency (Apr. 19, 2022) https://tinyurl.com/CompServerDiscussion.
42 Josh Price, Shifting Battlefronts: Why State Policy is Increasingly the Key to the Data Center Boom, Capstone (May 26, 2024), https://capstonedc.com/insights/featured-article/shifting-battlefronts-why-state-policy-is-increasingly-the-key-to-the-data-center-boom/.
43 Kevin Hardy, States Rethink Data Centers as ‘Electricity Hogs’ Strain the Grid, Stateline (Apr. 30, 2024), https://stateline.org/2024/04/30/states-rethink-data-centers-as-electricity-hogs-strain-the-grid/.
44 Whitney Pipkin, Data Center Bills Don’t Get Much Traction in Virginia, Bay Journal Media (Apr. 5, 2024), https://www.bayjournal.com/news/growth_conservation/data-center-bills-don-t-get-much-traction-in-virginia/article_b8a608de-f376-11ee-8871-27fa059d86e1.html.
45 Hardy, supra note 43; Georgia Butler, Zoning Permission Bill Proposed in Virginia to Limit Data Centers, Data Center Dynamics (Feb. 13, 2024), https://www.datacenterdynamics.com/en/news/zoning-permission-bill-proposed-in-virginia-to-limit-data-centers/.
47 Antonio Olivo, Fairfax Plans to Regulate Data Centers Amid Concerns About Industry’s Growth, The Washington Post, https://www.washingtonpost.com/dc-md-va/2024/07/29/fairfax-data-centers-zoning/ (July 30, 2024).
48 Current & Pending Major Research, Joint Legislative Audit & Review Commission, https://jlarc.virginia.gov/current-work.asp (last visited Aug.6, 2024).
50 H.B. 338, 163rd Gen. Assemb., Reg. Sess. (Va. 2024).
51 David Chercinoff, Maryland Reboots Data Center Business with New Critical Infrastructure Streamlining Act, Data Center Frontier (May 14, 2024), https://www.datacenterfrontier.com/site-selection/article/55039349/maryland-reboots-data-center-business-with-new-critical-infrastructure-streamlining-act.
52 Gabrielle Lewis, Governor’s Bill on Backup Generators Draws Questions, Concerns, Support, The Frederick News-Post (Feb. 22, 2024), https://www.fredericknewspost.com/news/continuing_coverage/quantum_loophole/governors-bill-on-backup-generators-draws-questions-concerns-support/article_006f8864-2d71-5fca-b106-6ec8f4080852.html.
54 Josh Kurtz, Green Group Drops Opposition to Amended Data Center Bill, Maryland Matters (Mar. 30, 2024), https://marylandmatters.org/2024/03/30/green-group-drops-opposition-to-amended-data-center-bill/.
56 S.B. 861, 446th Gen. Assemb., 2024 Reg. Sess. (Md. 2024).
57 S.B. 1298, 2023-2024 Leg., Reg. Sess. (Ca. 2024).
59 David Swinhoe, Georgia Governor Vetoes Bill to Pause Data Center Tax Break, Data Center Dynamics (May 8, 2024), https://www.datacenterdynamics.com/en/news/georgia-governor-vetoes-bill-to-pause-data-center-tax-breaks/.
60 H.B. 1992, 157th Gen. Assemb. 2024 Reg. Sess. (Ga. 2024).
61 H. 5118, Gen. Assemb., 125th Sess. (as passed by the S.C. House, Mar. 28, 2024).
62 H. 5118, Gen. Assemb., 125th Sess. (as passed by the S.C. Senate, May 8, 2024).
63 H. 4087, Gen. Assemb., 125th Sess. (as passed by the S.C. House, Apr. 5, 2024); S.B. 5118, Gen. Assemb., 125th Sess. (as passed by the S.C. Senate (May 8, 2024).
64 H. 4087, Gen. Assemb., 125th Sess. (S.C. 2024).
65 S.B. 237, 102nd Leg., Reg. Sess. (Mich. 2024).
66 H. 2792, 193rd Gen. Ct., Reg. Sess. (Mass. 2024).
67 Dan Swinhoe, Louisiana Introduces Data Center Tax Breaks, Data Center Dynamics (June 25, 2024), https://www.datacenterdynamics.com/en/news/louisiana-introduces-data-center-tax-breaks/.