The EPA just announced that they’ve created a special class of power plants that is exempt from pollution laws that apply to all other plants. In case you couldn’t guess, this special class consists of plants that power data centers and are owned by the data center developer or operator. In other words, while Congress intended pollution laws to apply to all power plants regardless of the purpose for which they’re used, plants that power data centers now get a special exemption because somebody in the White House has decided that rapid development of AI is more important than the health and well-being of many Americans.
In their announcement, the EPA engaged in some twisted logic. First, they neglected to note that only Congress can change the applicability of a law that Congress passed. Second, the EPA somehow believes that this measure will encourage data center developers to “bring their own plant” – i.e., build generation needed to power a new data center. The EPA says this, even though the AI companies and developers already promised exactly that in their Ratepayer Protection Pledge announced with the President in March. Of course, just signing the pledge doesn’t mean a developer or AI company won’t do whatever makes the most economic sense for them, Pledge or no Pledge. After all, who’s going to throw them in jail for breaking a promise?
How exactly will the fact that the data center power plants will be exempt from some (or even all) environmental regulations encourage more data centers to bring their own plant? It’s quite simple: If a power plant doesn’t have to comply with pollution regulations, it can be built much more cheaply. But when we look at the total cost of a power plant, we can’t just look at the costs directly paid by the developer and operator of the plant. We need to look at the total cost imposed by the plant on other people, especially people who live near it.
Of course, pollution is the biggest of those costs, even though nobody (today) sends the plant operator a bill for all the effects that the plant has had on their health, including effects like cancer that won’t be apparent for years or even decades. And no tree sends a bill for stunted growth due to the acid rain caused by the plant.
Nevertheless, the costs are there. My former economics professor Milton Friedman regularly pointed out that if a truck operated by the power plant hits my car, I can determine the exact damages and sue for that – plus my legal fees – in court; no regulation is needed. However, I can’t normally do that with pollution, even if I develop lung disease ten years later due to breathing the polluted air. Since pollution affects large numbers of people, the best way to deal with it is through regulation and taxation.
Exempting the power plants from environmental regulations is no different from imposing a tax on all inhabitants of the areas around the plants (and even wider areas, in the case of acid rain. I’m leaving out climate change for now). That tax is paid through poorer health and a less livable environment. In other words, all of us (and especially the people that live close to the data centers, who – ahem! – don’t tend to be the same people as the ones that decide to build the plant without pollution controls. The latter tend to live in nice areas that would be literally up in arms if a polluting plant were built in their area).
We pay for pollution with our health and through environmental degradation. Some people would say those costs can’t be calculated, so the only course of action is to prevent power plants that cause pollution from being built in the first place. However, the fact is that we make tradeoffs involving health all the time. After all, how many of us continue to drink alcohol – hopefully in moderation! – despite knowing there’s no perfectly safe level of alcohol consumption?
We need to consider all the negative effects of large data centers together; this includes high and increasing utility bills, but also other effects like the really scary risk related to grid stability. That risk is fortunately being actively addressed by the power industry today, but naturally a lot of the cost of mitigating the problem will be borne by – who else? – the ratepayers. All these costs – which are truly incalculable but are definitely very large – should be looked at as a tax on citizens to pay for the AI buildout. Should citizens really be the ones ultimately paying that tax?
Of course, the answer to that is no. We shouldn’t be required to pay costs incurred by any private entity (unless as a deliberate government subsidy granted through an open government process), whether it be OpenAI, Google, or the corner sandwich shop.
Here’s an idea: Why not tell (not ask) the AI and other tech companies that are directly benefiting from these data centers to pay that tax themselves? Of course, there’s no way to determine an appropriate tax for each data center. However, we can do what we often do when there’s an activity that imposes costs on the general public, such as smoking or alcohol consumption: impose an excise tax - which is a sales tax on a particular product or service. In this case, the tax might be imposed on the lease rates that the tech companies pay for the data centers (and if the same company built and operates the data center, they would still owe the tax). The proceeds should go to things that benefit everybody – affordable health care, quality schools, Universal Basic Income, etc.
And make no mistake: the tax needs to be a hefty one. And don’t worry about it’s being too high. You’ll know it’s too high when Jeff Bezos, Sam Altman, Mark Zuckerberg, and their like are on the street panhandling for quarters.
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