Data Center Development Facing Increased Scrutiny

Data center backlash is real, and it is limiting how quickly AI hyperscalers can move. New York recently passed a moratorium on new data center development while they grapple with how to regulate the industry. That law is pending the Governor’s approval and may be in limbo until the year’s end. Others have stopped short of full-on freezes and have opted to impose taxes and regulations, making development more costly but not impossible. Additionally, municipalities are weighing in, with cities like Anchorage creating local regulations for data center development. For its part, the federal government seems happy to pass off these thorny issues to the states. A recent memo from Crowell discusses the EPA’s approach:

“EPA Administrator Lee Zeldin announced at the Politico Energy Summit on June 10, 2026, that EPA will not pursue any nationwide environmental requirements or recommendations targeting the AI industry. While acknowledging that technologies exist to reduce water consumption and air pollution from data centers, Zeldin stated that determining appropriate practices for each facility is a matter for states and local communities, not EPA. The announcement shifts the burden for data center environmental regulation to state and local governments, creating a potentially fragmented regulatory landscape. At the same time, civil rights and environmental advocacy organizations are increasingly using citizen suits to enforce environmental laws.”

States’ interest in regulating data center development is primarily driven by resource management concerns. Data centers take a lot of power and water. Most of these laws are seeking to ensure that ratepayers aren’t left with the tab. Data center regulation is becoming popular across the political spectrum, with both red and blue states passing regulations. These laws may hamstring hyperscalers who were counting on unimpeded development to scale their operations. As a result, AI may become more expensive and restricted in the near future.