The rapid growth of artificial intelligence is driving unprecedented demand for data centers — and with it, increasing scrutiny from lawmakers, regulators, and communities caught in the crosshairs of energy, water, and land use debates.

For years, states competed to lure data centers with generous incentives, banking on high-tech jobs and long-term investment. But the surge in AI development has changed the game. Data centers are no longer just digital warehouses — they’re now essential AI infrastructure. That shift has complicated the once-smooth relationship between tech firms, energy providers, and government stakeholders.

“As the race to deploy AI infrastructure intensifies, technology firms and power providers find themselves navigating an increasingly complex political and regulatory landscape,” write Joe Brettell, a partner at Prosody Group, and Jeff Berkowitz, founder and CEO of Delve DC, in a recent commentary. “The rise of AI has only accelerated this trend, transforming data centers into critical infrastructure.”

Their assessment, based on years of advising energy and infrastructure players as well as AI-driven analysis of policy trends, reveals a challenging dynamic.

Surging Demand Meets Resistance

AI data centers require massive amounts of electricity, land, and water. A single facility can consume as much energy as a mid-sized American city. That demand has created friction with utility providers, grid operators, and environmental advocates — particularly in states like Virginia, Utah, and Illinois, where utilities are straining to meet new loads.

“Power consumption is perhaps the most widely discussed concern — a dominant topic at the recently held CERA Week, and one that hits most residents directly,” the authors note.

And while speed is essential for tech firms looking to maximize their AI investments, that urgency is often at odds with the pace of regulatory approvals and infrastructure buildout. Case in point: Entergy’s $10 billion agreement to power a new Meta data center in Louisiana has already sparked lawsuits from environmental groups, despite the project’s backing from the state’s governor and utility regulators.

“Even in areas where energy development is a part of the social fabric, these concerns have driven controversy,” Brettell and Berkowitz write.

Hidden Costs: Water and Jobs

Beyond electricity, water use is becoming a flashpoint. AI cooling systems require significant resources — a critical concern in drought-prone regions like California and Arizona. Activists and lawmakers are increasingly questioning whether these projects align with long-term sustainability goals.

States are also beginning to reevaluate the return on their incentive investments. While data centers bring capital, they often offer few permanent jobs, especially in rural communities. Legislators in Indiana, Georgia, and Virginia are now reconsidering incentive programs as watchdog groups argue the job creation doesn’t justify the public cost.

“Legislators… are beginning to question whether existing incentive structures provide a fair return,” write the authors. “While data centers bring capital expenditures, they fall short on job creation — particularly in rural communities that bear the infrastructure burden.”

Energy and Tech: At Odds?

Though both sectors need each other, tensions are growing. Utilities worry that AI firms’ aggressive growth projections could lead to overbuilding infrastructure, placing unnecessary costs on everyday ratepayers.

“Utilities are under pressure to maintain reliability and keep rates fair for existing customers,” the authors explain.

Efforts to pair data centers with on-site generation — like renewables or nuclear — are promising but remain entangled in permitting challenges and legal hurdles. Controversial right-of-first-refusal laws are also raising concerns around fairness and competition in power transmission.

Toward a Smarter Growth Model

Some companies are making strides to ease tensions — offering voluntary tax contributions, partnering with communities, and investing in local infrastructure. But a more coordinated and policy-driven approach is needed.

“To maximize value for local communities while being good partners, policymakers at every level must craft clear, consistent guidelines on siting, environmental impact, water and energy usage, and incentive structures,” Brettell and Berkowitz urge.

The fragmented patchwork of state policies, they argue, creates unnecessary uncertainty for all stakeholders.

A Defining Moment for AI Infrastructure

This is just the beginning of the AI age, and infrastructure decisions made today will shape the technology’s trajectory for decades.

“We’re not yet at the ‘AOL free disc’ moment for AI,” the authors note. “But the infrastructure decisions being made now will shape who leads — and who lags — when that moment arrives.”

To get it right, industry and government must work together — not just at speed, but with shared purpose.

“Meeting this moment requires more than engineering and investment,” Brettell and Berkowitz conclude. “It requires public affairs leadership that understands the politics of power, the economics of community trust, and the intersection of innovation and impact.”

Originally reported by Joe Brettell and Jeff Berkowitz.