Powering Progress Episode 14 – Environmental Litigation and the New Data Center Playbook

Transcript

Aubrey Bishai [00:00:09]

Welcome back to Powering Progress, a podcast series exploring the infrastructure, energy, and market dynamics shaping the next generation of data centers and AI development.

I’m your host, Aubrey Bishai, Chief Innovation Officer at Vinson & Elkins.

Throughout this series, we’ve explored the extraordinary investment flowing into data centers and the challenges surrounding power, real estate, financing, and technology.

But as development accelerates, another challenge is emerging: environmental litigation.

Data centers require large amounts of power, substantial infrastructure, and increasingly complex permitting approvals.

At the same time, developers are facing growing scrutiny over air and water quality, energy consumption, land use, and the impact of these facilities on surrounding communities.

And even when projects secure the necessary permits, legal challenges can create significant delays, increase costs, or potentially prevent development altogether.

Joining me today is Patrick Traylor, a partner at Vinson & Elkins whose practice focuses on environmental litigation and regulatory disputes.

We’ll explore how environmental challenges to data center projects are evolving, what we’re beginning to see in the courts and administrative proceedings, and what developers, operators, and investors can do to anticipate and manage these risks.

Patrick, welcome to Powering Progress.

Patrick Traylor [00:01:59]

Yeah, it’s a pleasure to be here, Aubrey. Thanks for having me.

Aubrey Bishai [00:02:03]

Environmental organizations have developed sophisticated litigation strategies to challenge major industrial projects. How are those strategies now being applied to data centers, and what should developers understand about the legal landscape they’re entering?

Patrick Traylor [00:02:20]

That’s a great lead-in question. I would say that data center developers are entering into a fraught legal landscape. And by fraught, I mean that they are beginning to face very competent, very well-prepared and well-funded opponents to these projects. And data center developers need to understand that the rules of the development game are changing very quickly with these environmental litigation opponents now in play.

Let me just give you a couple of examples. Environmental litigation isn’t always about actual environmental impacts. I mean, that sounds a little counterintuitive, but it’s true. There are oftentimes deeper issues that are in play. And environmental requirements and environmental statutes are oftentimes used to leverage the deeper issue.

So national environmental groups like the Sierra Club and their public interest law firms like Earth Justice and the Environmental Integrity Project, over the decades, they have developed a very sophisticated litigation playbook that they use to oppose all manner of different kinds of projects, and their opposition isn’t always environmental opposition, but they use the environmental statutes to supercharge that opposition, and they enlist those statutes in support of that opposition.

So, air quality laws, water quality laws, groundwater laws, endangered species, tribal rights, noise ordinances, zoning ordinances — I mean, all of those things are simply tools that these groups will oftentimes use in pursuit of their broader objectives in opposing a project. That’s the legal landscape that data center developers are beginning to walk into, and their opponents are ready for them. They have for decades been honing their craft to oppose projects.

I think maybe it’s important to think about what those deep issues are. I mean, what is the source of opposition? Because oftentimes it’s not really the environmental impacts. So, I’ve given some thought to that, because we represent data developers, data center developers around here, and we want to understand communities’ points of view and our environmental advocates’ points of view, to make sure that we’re informed, to avoid pitfalls, to avoid landmines if possible, but at least understand what people’s perspectives are.

And here’s what I’ve come up with in terms of the deep issues. Number one, look, there is just a generalized anxiety about the disruptive effects of AI in the economy and in society. That’s got nothing to do with environmental law, but there is this generalized anxiety. Am I going to lose my job? Is my kid going to be able to get a job? Are we going to reach some sort of dystopian future in this country where AI is doing things that we don’t want it to do? That kind of generalized anxiety kind of gets layered onto data center development.

I think there’s also a strong sense of what I describe as socioeconomic reactions to the unprecedented wealth that’s being generated in the tech sector. That wealth is not evenly distributed across the economy. And so there is a sense in which tech companies are getting very wealthy, and there’s the sense that that wealth is being generated at the expense of other people.

There’s also this perception that data center deals are being negotiated in secret with local and state governments. And obviously NDAs, non-disclosure agreements, are an important part of development, but there’s just this growing sense that these deals are being done in secret.

A fourth thing that I’ve thought about is, oftentimes the environmental permitting strategies that are used by data center developments, they need to move quickly. They need to move fast. And they can sometimes select environmental permitting processes that don’t have the highest level of public engagement. So for example, under the Clean Air Act, you could get a major source permit, which has all kinds of public notice and comment and hearings, or you can get a minor source permit where applicable, and in many states, those come with just less intensive public engagement and public involvement. And so communities can begin to believe that these things are being constructed without their knowledge, without their involvement, without their opinions being heard by regulators.

Over to kind of more real issues — I mean, some facilities do use a large amount of water. And especially if the municipality is water stressed, that can be an issue that’s important to think about and to resolve. Some of them do create noise, some of them unwelcome levels of noise, particularly in previously very quiet rural areas where quietness was the rule of the day. They can produce some noise. And then, bringing your own power to these data centers, they can create localized air emissions.

Those are legitimate concerns that people have. But we’ll get into a minute about whether those concerns are really borne out by the facts, or whether they’re more generalized concerns by opponents.

Anyway, you mix all this together, Aubrey, and you get just sort of this fairly now intense level of opposition, not really for environmental reasons, but for all these other reasons. And so developers are sort of walking into this and they’re finding well-funded, very competent environmental groups that are picking up on this grassroots kind of opposition to data centers. And they’ve got the tools to make it very difficult to develop these centers.

Aubrey Bishai [00:08:35]

Environmental challenges can involve everything from air and water quality to noise, land use, endangered species, and community impacts. Which issues are emerging as the most significant sources of disputes for data center projects, and why?

Patrick Traylor [00:08:56]

From the environmental perspective, I would say that the main areas of opposition are the following. Let’s start with air quality. Many project opponents believe that especially these bring-your-own-power data centers are adversely impacting local air quality. These data centers are voracious energy users. And the kinds of power generation facilities that are needed to be installed to run these data centers reliably — I mean, they can literally power a medium-sized city, sometimes even a larger city. I mean, they use a lot of power.

And folks are concerned, especially local residents are concerned, that all that local power generation being deployed is going to be adversely impacting air quality. Look, it’s a legitimate kind of concern. Anytime you see an industrial development in your region, in your neighborhood, people are naturally going to think about air pollution, and rightfully so. That’s one of the big issues that we’re seeing really come to the fore in a lot of the permit appeals and a lot of the litigation that we’re seeing.

But we have to be careful about recognizing legitimate concerns and then thinking through more carefully whether those concerns are scientifically or factually grounded. The concern is understandable. But when the concern turns into fear that’s not informed by the facts, that’s where you begin to get opponents and project developers really getting at odds with each other.

For example, we do a lot of this work here at Vinson & Elkins. We do project permitting, we do project enforcement defense, we do project permit defense. And in each of those matters, it’s our obligation to think long and hard and carefully about whether there are really adverse air quality impacts from the developments. And in all the matters that I’ve worked on, we use computer models endorsed by the Environmental Protection Agency to assess whether or not those additional emissions are really causing levels of unhealthy air pollution in the region, in the community.

And without exception, none of the data center projects that I’m aware of — and we do a lot of this work, multiple gigawatts, scores, I think, of gigawatts worth of installed capacity — they simply don’t have adverse air quality impacts. So while I appreciate the concern, the facts are these are generally very well-controlled generation units, and they’re not causing the kinds of air quality impacts that people are afraid of. And so you get this fear-versus-fact narrative that becomes very powerful. So air quality is really one area that folks are concerned about in terms of data center development.

Yeah, I think water use is another one that you hear a lot about. Oh, the data center is going to consume all the city’s water. Honestly, a typical air-cooled data center uses less water per day than a golf course. So they do use water, yes, but they don’t use as much water as many other very non-controversial uses of water in towns and cities and country clubs all over the country. And they use 50 times less water than irrigating 1,000 acres of farmland. The idea that data centers always consume too much water and are going to be stressing water supplies — that’s also not borne out by the facts, although it is a part of the public narrative.

Now look, if a data center is placed in an area that’s already water-stressed, it’s just going to continue to contribute to that pre-existing water stress. But across the landscape, data centers are not massive users of water in comparison to just everyday kinds of water uses at the kinds of installations and facilities that Americans are quite accustomed to seeing, like golf courses.

I think the third thing, and this is the final one, in the areas that we’re seeing in terms of emerging issues: noise complaints. Especially if a data center is using smaller natural-gas-fired electricity generators, those can be somewhat louder than even larger kinds of electricity generating facilities. And so neighbors will oftentimes think about the noise. This is a question of siting, though. This isn’t necessarily inherent to data center operation. Lots of industrial operations create noise. Lots of engines create noise.

And so siting these things well, and having sound baffles and sound and noise mitigation structures around a data center at the fence line, is going to put the sound, the noise from it, in, I don’t know, a 40 to 55 decibel level, versus sort of a typical residential neighborhood noise level of 40 to 45 decibels. So maybe somewhat louder, right, but not dramatically louder than what’s already going on in cities and in places.

Now, look, if you’ve got some pristine place where the only thing you can hear is the wind blowing and a data center goes in there, yes, nearby residents are going to notice the difference, because that is a change. And I appreciate that. I acknowledge that could be an impact. But the idea that these things, across the landscape, are unbearably loud or causing unbearable noise-related impacts in every location? I don’t think that that’s factually the case, particularly for well-sited and well-mitigated kinds of units.

So those are the three things that we’re seeing frequently now: air quality, water use, and increasingly kind of noise complaints. That’s what we see so far. But the playbook from the environmental opponents will eventually begin to pick up things like zoning, endangered species, land use, and so forth. Those things may not be on the front burner right now, but as they begin to oppose more and more of these projects, we’ll see these other issues begin to come to the forefront as well.

Aubrey Bishai [00:15:25]

Data center developers are under tremendous pressure to move quickly, yet environmental reviews and litigation can take months or even years. How can companies reconcile these competing timelines, and what happens when a permit challenge disrupts construction or financing?

Patrick Traylor [00:15:45]

Well, Aubrey, that’s the million-dollar question. How do we get data centers constructed, following all required environmental laws, in a way that guarantees that they’ll be able to be constructed and brought to operation as quickly as possible.

The driver here, unlike a lot of industry, the driver in data center development is time to market. Especially for artificial intelligence data centers, the demand for these frontier models, these frontier AI models to become more and more capable, to keep up with the competition, to stay ahead of the competition. And it’s not just domestic competition. I mean, there is an international competition going on right now that has strong national security implications as well.

So it’s not just, you know, how quickly can you get the latest recipe that you want to put together or get your groceries delivered by the agentic AI bot, but the, you know, real national security implications of strategic opponents around the world really developing AI very quickly. So time to market is critical.

Data centers don’t have the luxury of waiting two years, two and a half years to begin construction of their next data center. So they are, by necessity, finding the fastest way to get through environmental permitting in a lawful way. They might prefer to take a more conservative approach that makes all of their environmental permitting more bulletproof, right? Gold-plating every analysis, talking to everyone that has a voice, that wants to speak into the development, you know, spending months and months and months performing expert reviews of this, that, or the other issue, just to make sure that when the permit finally comes out in draft form, they have anticipated every issue, everyone has been consulted, and then the permit is issued without opposition. But that takes years in most cases to make that kind of thing happen. And in this industry, the time to market is essential. It is an element of the AI data race. So we don’t have that kind of luxury.

So instead, what happens is data centers employ perfectly lawful, but faster, environmental permitting approaches. And when you use faster environmental permitting approaches and you haven’t done all the outreach, you haven’t done the nth degree of studying the issues, naturally, those kinds of permits are going to be more susceptible to project opponents asking questions and perhaps even eventually bringing challenges.

So there’s really no way to reconcile the speed to market that is required in the AI data race and project opponents’ desire for the project not to be built at all for whatever reason, and them employing objections to these more streamlined environmental permitting processes. Those are just inherently in tension right now. Opponents are not going to give up and allow the more streamlined approaches because they just don’t want the data center there to begin with. And project developers, like I said before, they don’t have the luxury of waiting two, three more years to get the permits to build these facilities.

And so reconciling these competing timelines is actually not possible. You just have to manage — just manage the opposition, manage and go into these developments knowing that you’re likely to draw some level of opposition. It’s a problem to be managed, not a tension that, at least at this point, can be reconciled.

Aubrey Bishai [00:19:41]

Obtaining all the necessary permits doesn’t necessarily protect a project from litigation. Why is that, and what additional steps should developers consider to strengthen their position before a challenge occurs?

Patrick Traylor [00:19:55]

Yeah, it’s a great question, Aubrey. In terms of looking around corners, how can a data center developer, given what I’ve already said about having an entrenched opposition that’s not necessarily focused only on environmental issues, but deeper issues that are driving the opposition, what is a data center developer to do to minimize the likelihood that their project would suffer some kind of catastrophic permit denial, or permit vacatur, or enforcement action that results in a shutdown of the data center.

I think there are a few things. Like I said before, this can’t be avoided. This is not a tension that can be avoided. It can only be minimized and managed. And so this is how data center developers can minimize and mitigate and manage these kinds of challenges.

Number one, siting is so important. Other heavy energy users have learned long ago that siting is critical. You want to make sure that you are in an area that has local and state political support for your project. You don’t want to drop a data center down in an area that already is expressing opposition to data centers. I mean, that sounds sort of intuitive, but it has to be said.

That’s why you don’t see a lot of data center development — and I’m not going to name the states — but there are many states in this country that have come out and said, we don’t like data centers, we’re going to put a moratorium on data centers. Obviously, you don’t want to site there. Then there are states that say, we are 100% open for business for data center development, please come build in our economy. And so data centers would naturally gravitate towards those places. And then there are states in between where it’s a little bit uncertain. It seems like it would be a good regulatory environment to build a data center, a good economic environment to build a data center, but maybe some uncertainty. So the siting in those states in particular will bear some thinking, some outreach, and some evaluation of political support. That’s the first thing. You really have to make sure you’re going to a place that has political support for the project.

I guess the second thing that one would go about doing is, even in states and localities that are politically supportive or could be politically supportive of the project, there are just areas where there are environmental concerns already. So for example, under the Clean Air Act, a non-attainment area — that is, an area where the local air quality is already not attaining EPA health-based standards — it will be challenging, not impossible, but it will be more challenging to build a data center in air-quality-impaired areas, harder to do it there than if you go to an area that already has healthy levels of air that you’re not going to degrade.

Water use — I’ve already mentioned this before — building a data center in an area that’s already stressed in terms of water availability is a siting decision that may be necessary, but should be avoided if possible. So water use, air quality — that’s what I’m talking about in terms of siting at a place where the local environmental concerns are not so preeminent and not so likely to cause opposition.

I’ll throw in there as well, siting for noise purposes — you know, having setbacks from residences, having woods around, helps. If you don’t have woods around, you know, building the kinds of structures that industry knows how to build to mitigate noise from traveling too far away from the facility.

So, siting properly is good. Look, I mean, we’ve already talked about the need for data centers to select the fastest lawful method of getting environmental permits, making sure that you dot every I and cross every T in terms of whether that more streamlined permit is available to you. That is so important. We do so much of that in terms of advising our clients on, this streamlined permit is not going to work for you for the following reasons, or this streamlined permit will work for you. So we have to make sure and be very careful that you remain qualified for the more streamlined permit.

Getting involved early in the project development and siting stages — to us, we’ve seen success in doing that, to make sure that, again, I’s are dotted, T’s are crossed.

What data center developers shouldn’t really do is just rely on environmental consultants exclusively. They are critical to this process, don’t get me wrong, but they’re not lawyers. So you wouldn’t rely on lawyers to do math in terms of these permit applications or engineering, and you wouldn’t rely on consultants to do the legal thinking about whether you are really legally qualified to get the more streamlined permit. It’s like three legs of a stool. You need the legal discipline, you need the technical discipline, and you need the business discipline, all cooperating together at the very beginning. Those are the projects that we see are more successful longer term. Again, not risk-free. Owners’ opponents may be entrenched, but there are things that companies can do to manage and maybe minimize the risk of an unfortunate outcome on the back end of a development process.

Aubrey Bishai [00:25:27]

Thank you so much, Patrick.

Patrick Traylor [00:25:30]

Well, Aubrey, thank you for having me. It’s been a real pleasure and I wish you well. Thank you.

Aubrey Bishai [00:25:35]

And thank you everyone for listening to Powering Progress from Vinson & Elkins. For more insights on AI infrastructure and the forces shaping the data center economy, visit velaw.com.