Data Centers, AI, and Decarbonization: Legislative Focus Areas

As part of an ongoing blog series, Arnold & Porter’s cross-practice Energy and Energy Transition team is highlighting key legal and regulatory developments for clients across economic sectors navigating all aspects of the energy transition.  

The growing impact of emerging technologies like artificial intelligence (AI) and the data centers that power them using U.S. energy has piqued the interests of federal policymakers across the political spectrum. In our previous Advisory in this series, we provided a high-level overview of the factors of interest to legislators and discussion of the subject in recent congressional hearings. This Blog provides an overview of emerging industry perspectives on AI and data center power consumption, and the current and forthcoming legislative proposals to regulate it.

Industry Representatives Outline Positions on Power Consumption and Emerging Technology

Nationwide demand for electricity is increasing dramatically, driven in part by significant investments in new data centers designed to serve AI functions. As policymakers investigate legislative responses to this demand increase, representatives from across the energy and technology sectors are advocating for favorable policies.

Leading trade associations argue that lawmakers should focus their efforts on removing barriers to expanding the electric grid and more rapidly bringing electric generation sources online, in particular improving the permitting and siting process for electricity transmission. Others have highlighted the impact of electric load growth on renewable energy goals. For instance, Dominion Energy recently suggested it will be forced to supplement its renewable energy with investments in nonrenewable sources like natural gas to meet demand from new data centers. Data center developers, meanwhile, have pushed for greater federal investments in clean energy development.¹Large tech companies express similar sentiments. For instance, Microsoft announced a multi-billion dollar deal to power data centers with low- or zero-emission energy. Google recently announced a similar partnership with Nevada utility NV Energy to procure power via a “clean transition tariff,” which would require Google to pay a higher rate to power its datacenters with carbon-free energy. Market researchers have found data center providers contracted 40 gigawatts (GW) of wind and solar energy in 2023 as companies balance reaching their growing energy needs with renewable energy commitments. 

Legislative Proposals

Federal policymakers have introduced a number of proposals to regulate the impact of artificial intelligence and emerging technologies on power demand.

Senate AI Working Group member Martin Heinrich (D-NM), Sen. Ed Markey (D-MA), House AI Caucus Co-Chair Anna Eshoo (D-CA), and Vice-Chair Don Beyer (D-VA) introduced the Artificial Intelligence Environmental Impacts Act of 2024 (S. 3732/H.R. 7197), legislation that would require the National Institutes of Standards and Technology (NIST) to develop standards for evaluating the environmental impact of AI models. The bill would also require a study of the positive and negative environmental implications of AI. Despite support from influential members of the House and Senate AI policy community, a path to passage for this legislation has not been outlined yet.

Senate Majority Leader Chuck Schumer (D-NY) also encouraged relevant committees, in conjunction with the private sector, to “address and mitigate” the energy costs associated with AI models to promote innovation competitiveness with China in his May 2024 roadmap for federal AI policy. While not prescribing a particular policy solution, Sen. Schumer’s roadmap highlights AI policy issues that feature bipartisan concern and will likely serve to guide the development of more substantive AI policy proposals in the 119th Congress.

The White House also recently convened stakeholders from across the AI, data center operations, and energy utility spaces for a roundtable discussion of steps to ensure the U.S. remains a global leader in AI infrastructure. Following the roundtable, the White House announced the creation of a number of data center-related initiatives, including the creation of a Task Force on AI Datacenter Infrastructure, which will coordinate federal policies to ensure datacenter development aligns with U.S. economic and national security interests.

Similarly, the Biden administration underscored the importance of AI-enabling energy infrastructure in an October national security memorandum (NSM) on AI. The NSM directs the White House Chief of Staff, Department of Energy, and other relevant agencies to streamline permitting processes for clean energy generation, transmission lines, and fiber data links to facilitate AI development.

Finally, the Harris campaign recently published a memo detailing its economic policy priorities, including a new “America Forward” tax credit that would incentivize domestic investment in the development of AI data centers and clean manufacturing, among others. The credit would feature bonus amounts tied to investments in “longstanding manufacturing, farming, and energy communities” and the use of union labor, not dissimilar from the bonus credits associated with many of the Inflation Reduction Act’s (P.L. 117-169) green energy incentives, including the Section 45Y clean energy production tax credit. While the exact details of these proposals have not been released, the Harris campaign’s reluctance to tie credits for investments in AI and data centers to green energy in initial messaging may reflect the administration’s willingness to support computing infrastructure projects powered by nonrenewable energy.

These proposed credits may prove contentious as the 2017 Tax Cuts and Jobs Act (TCJA) (P.L. 115-97), a Republican priority that slashed corporate and individual tax rates and provided billions in new incentives, expires in 2025. Extending the TCJA is projected to add $4.6 trillion to the federal deficit over 10 years, adding to mounting pressure on Republicans and Democrats to cut spending as the federal deficit balloons. The “America Forward” credits would almost certainly be offset by a corresponding tax hike if signed into law, particularly under a divided government scenario. The Trump campaign has not proposed similar credits, favoring a permanent extension of the TCJA.

Conclusion

The growth in AI applications is presenting policymakers with an opportunity to establish a framework to ensure the U.S. remains competitive on the global AI stage, including through the consideration of creative options to meet their burgeoning electric demand in a timely manner through the deployment of new and existing infrastructure. While this issue remains relatively nascent, stakeholders on all sides of this policy discussion have a significant early opportunity to educate policymakers on their perspectives and to secure a seat at the negotiating table when legislation to address imbalances is eventually considered. Please contact Arnold & Porter’s Legislative and Public Policy group for details on how to engage.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.