How Governments in the U.S. and Europe Are Stalling the AI Buildout

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1:04Alex Ossola:Hey, What's News listeners. It's Sunday, July 19th. I'm Alex Osola for The Wall Street Journal. This is What's News Sunday, the show where we tackle the big questions about the biggest stories in the news. On the show this week, data centers are being built all over the world to power the artificial intelligence boom. We're looking at efforts across the U.S. and elsewhere to slow their build out.

1:29Alex Ossola:As AI becomes more embedded in people's lives, there's a growing need for data centers to power it. According to recent Pew Research, there are more than 3 ,000 operating data centers in the U.S. and another 1 ,500 in the works. The AI giants are paying a lot to make those happen. Analysts estimate that the capital spending by just five of the hyperscalers, Alphabet, Amazon, Meta, Microsoft, and Oracle, to be$741 billion this year alone. But the communities where these data centers are being built or proposed have been less enthusiastic. Anybody that's against this, please stand up for the next minute.

2:08Project Blue will be net water positive. It sets a new standard. People are worried about how much water these buildings use, how much electricity they consume.

2:25Alex Ossola:They think they're noisy and that they're bad for the environment and that having one nearby will make their homes less valuable. A May poll from Gallup shows that 7 in 10 Americans oppose data centers being built in their local area. That's not the case everywhere. But increasingly, people are making their opposition known. They're protesting, joining Facebook groups, and pushing local lawmakers to stop the data center's construction. As of last week, the journal has found that about 240 local governments had moratoriums on building them. Also last week, New York became the first state in the U.S.

2:58Alex Ossola:to issue a temporary ban. Here's New York Governor Kathy Hochul announcing it. These hyperscale AI data centers consume enormous amounts of power, truly threatening to outpace our grid's capacity, and they drive up costs for local ratepayers. And I refuse to let those costs be passed on to New Yorkers, who already pay too much for their utility bills. Also last week, Australia's prime minister said his country plans to require data centers to underwrite their electricity and water supplies, with legislation expected early next year. To understand more about how governments are stalling the data center build-out, I'm joined by journal reporter Will Parker, who covers data centers in the U.S., and Yusuf Khan, who's following the story in Europe.

3:46Alex Ossola:Right off the bat, we're talking about opposition and moves to delay some of these projects. But are all communities approaching it like this or are some sort of welcoming in these projects with open arms? There's a distinction to be made between the local governments in these places and their voters and constituents. Often what you see is that many of the local governments are extremely supportive, right? I mean, they are the ones that update their zoning codes and try to make their laws amenable to data center developers so they can come in and build these projects. One of the reasons that they're doing it is that the data centers oftentimes produce a lot of revenue for local governments.

4:24And there are some that are extremely proud of their track record on this. Loudoun County in Virginia, for example, often touts how robust their finances are now because of the data center boom and what they're able to spend on public infrastructure in schools and so forth. And among the general public, separate from the local governments, there are people who support the data centers as well, or at least are ambivalent about them. But there's some opposition almost everywhere.

4:48Alex Ossola:You said, do you have anything you want to add to that? It's kind of the same story, really, especially in certain countries like Ireland. A lot of the tax coffers come from these big tech companies. And so, you know, it's a catch-22. I think one of the things that Europe has seen, obviously, for the last few years is very, very high energy prices and a cost of living crisis. And the main things that politicians and companies that when they talk about this is how do you mitigate those things? And then also have this AI development and AI growth. Can they work in tandem? What's the ways to do that?

5:21Interestingly, one of the key things that you see at these community groups is often the questions will start with, I understand we need AI. How is the question often that is posed?

5:30Alex Ossola:So, Yusuf, the EU has been pushing for this data center sustainability rating. How is that supposed to work and where does that effort stand? If we come in from a broader view, the EU kind of feels at the moment that it needs to catch up in AI, right? AI has been mostly led out of Silicon Valley, out of California, the U.S. in general. There aren't really these big AI hyperscaler startups in Europe and most of the investment has come from abroad. So there's this idea, firstly, that we need to catch up. But then you have the idea that Europe has been very climate friendly, very in focus of the population.

6:03how do you then you know have these two things match up where you have this sort of sustainable growth within the population economically also bringing in ai and how do you do those two things together and so one of those things is yeah the eu's looking at this sustainability rating for data centers and that will be on energy usage water usage things like that and basically it's sort of like a star rating system or something akin to that of how sustainable is this data center is it renewable energy is it gas is it other forms of power and then like in the same thing how is water being used, how is water being conserved, those sorts of things.

6:35Will newer data centers be better for that? You know, a lot of these data centers are quite old at this point that have been coming through the cloud computing boom. They probably will have a slightly worse rating, for example. How do you improve those sorts of things? This is something that the EU is very good at, is setting standards and making sure that everyone meets these minimum requirements.

6:56Alex Ossola:And yet the effort has seen opposition. Who is pushing back against this and why? At the end of the day, people don't often really want data centers in their backyard trying to say like, well, actually, these ones are more energy efficient or these ones are slightly better because they use less water. You still have a massive data center in your backyard. And for voters within your constituencies, that often is a real problem. And if you're trying to be re-elected or any things like that, and I think we're seeing that in the States as well, where the political messaging around these data centers and how we interact with large tech companies, that's going to continue to be an issue within Europe and within the EU itself.

7:33Alex Ossola:Coming up, how AI companies are responding to the growing pushback over data centers. That's after the break.

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8:04Alex Ossola:A growing number of U.S. municipalities and local governments have passed or are considering legislation to rein in data centers. What strategies are they using, and how would that work in practice? The main thing that we see is some sort of temporary ban on their construction. The idea with that oftentimes is that eventually we will allow the data centers to be built once we have more codified rules and expectations of how they're built, what their responsibilities are, what the impact would be to the environment and the electrical grid. Or at least it starts out that way. Over time, we'll see if more locations move towards permanent bans, which is less often seen.

8:42You've also seen state governments and lawmakers at that level attempt to pass statewide bans. There was one that became pretty close in Maine that made it to the governor who ended up vetoing it over a couple of contingent requests that she had made that the legislature didn't fill. But I think we're going to continue to see more and more attempts to restrict just building them at all, at least temporarily. There are other ideas that have been floated, like reducing the tax cuts that data centers receive on the purchases of their servers and equipment, which can be a tremendous amount of tax revenue lost.

9:15Those are the main tools that local governments have been tapping to restrict the growth of data centers.

9:22Alex Ossola:Yusuf, over in Ireland, the country is insisting that companies bring their own energy supply to power their data centers. Is it deterring companies from trying to build there? So the regulations actually only come into effect in the last couple of months. So it's kind of hard to tell, but it was definitely a line in the sand from the Irish government. Ireland is one of the densest areas in terms of data centres. At the moment, it's probably too early to see what is happening in terms of the change in behaviour. But from the companies I've been speaking to is they're now redrafting all of their plans in terms of how do we build this data centre that we were trying to build before?

9:57What kind of fuel can we bring in? Can we do bio-natural gas, which is a bit more sustainable? Can we add a wind farm? Can we add solar panels?

10:04Alex Ossola:I want to talk a little bit about how companies are responding to these challenges, both from governments and from grassroots organizations and communities. So, Will, because these companies are often based in the U.S., I want to talk a little bit about how they've shifted their tactics and how they address some of these challenges to their construction since the start of the AI boom. I don't think it's a uniform response. And there's a lot of different types of companies involved. You have the big hyperscale tech companies everyone is familiar with, but you also have a lot of real estate development firms that are building data centers and then trying to lease it or sell it.

10:40And they're the ones that are really working at the local level and putting themselves in front of the rooms of angry residents. But I think the main thing is that the companies trying to bring data centers are trying to emphasize the economic benefits first and foremost. So the construction jobs they'll create, trying to convey that they'll also create a significant amount of permanent jobs, which is one of the things that data centers are often criticized for not doing very much of. putting up what they call community benefit payments in addition to the tax revenue that they'll give. So that might be money directed to a specific improvement like a new firehouse, or in the case of the Metadata Center in Louisiana, the local government there is giving bonuses for public school teachers, which it says it's able to do because of the tax revenue.

11:24Microsoft, for example, put out a commitment to transparency and to say that they won't use non-disclosure agreements when they began talks with local governments over data centers, which is something that has upset a lot of people, the feeling that data center developers and governments work in secrecy, at least for a time, in the planning of data centers.

11:44Alex Ossola:Youssef, are these companies using a different playbook in Europe? One of the things that a lot of these tech companies are very vocal in climate. And so one of the things that they've been trying to really push is the idea that AI will help solve a lot of the problems that we're seeing and that the developments in AI will make things more efficient. You know, we'll get better chips that will require less water. And so what we're seeing now will not be what we see in a few years time. Kind of almost like a bear with us for now kind of thing. This will get better. Journal reporters Will Parker and Yusuf Khan, thank you both so much.

12:17Thank you. Cheers.

12:19Alex Ossola:And that's it for What's New Sunday for July 19th. Today's show was produced by Danny Lewis with supervising producer Melanie Roy. I'm Alex Osola, and we'll be back tomorrow morning with a brand new show. Until then, thanks for listening.

12:56enforces policies before spend happens, and closes your books in minutes. So your finance team stops managing tools and starts driving the business. Learn more at brex.com slash AF. This podcast is brought to you by ReliaQuest. Cyber criminals are constantly attacking. They want your data. They want your identity. They want your innovation. ReliaQuest fortifies your business with agentic defense, AI that detects, contains, and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next.

13:30ReliaQuest, agentic defense for the enterprise. Learn more at ReliaQuest.com. That's R-E-L-I-A-Q-U-E-S-T dot com.