Data center power crunch: Meeting the power demands of the AI era
This strain on power infrastructure stems from digital infrastructure and artificial intelligence (AI) expanding more rapidly than they can be connected to the power grid.
Why air permitting matters during the data center boom
The data center industry is booming, fueled by the rapid growth of Artificial Intelligence (AI) and demand for the underlying hardware that supports its development and use. As growth accelerates, data center power demands are multiplying, pressuring grids already stretched by the growing electrification of transportation, buildings, and industry.
To ensure grid issues do not interfere with data center operations, U.S. developers are increasingly turning to on-site power generation. For example, a January 2025 report of U.S. hyperscalers and colocation developers found that approximately 30 percent plan to include onsite power generation at their data center sites by 2030 to supplement power supplied from the grid.
However, as on-site power generation increases, data center developers face a new challenge: navigating the air permitting regulations that govern these generation sources. To make matters more complex, the U.S. regulatory landscape is a moving target, as agencies across federal, state, and local levels revise their approaches to manage the air quality implications of data center expansion.
This complex regulatory landscape does not have to derail on-site power generation plans. With the right strategy, developers can future-proof their data centers and ensure they have the power they need to grow.
At ERM, we see three key areas for developers to keep top of mind as they take the next steps in their air permitting journeys.
- Stricter air quality modeling as the new norm
- Backup diesel generators under the microscope
- Contrasting regulatory approaches likely to sow confusion
Stricter air quality modeling as the new norm
The regulatory evolution
Stricter air quality modeling requirements for data centers are emerging in the U.S., as local concerns over air quality mount. Nowhere is this more apparent than at the state level, where some regulators require developers to conduct air quality modeling for their backup diesel generator fleets to better understand and minimize local impacts.
For example, in late 2024, the Illinois Environmental Protection Agency (IEPA) required air quality modeling for a fleet of 34 generators set to serve two new data centers in Cook County before it would issue a construction permit, given the site’s proximity to environmental justice communities. The construction permit was subsequently approved after a review of the modeling found no violations of the relevant National Ambient Air Quality Standards (NAAQS), along with no documented health impact claims or nuisance complaints.
Other state regulators require air quality modeling beyond NAAQS. Oregon’s Cleaner Air Oregon (CAO) program applies to new and existing facilities that must obtain (or have previously obtained) an Air Contaminant Discharge Permit (ACDP) or Title V permit and requires developers to identify potential toxic air pollutant emissions and assess associated risks through modeling. All data centers that meet CAO applicability requirements must comply with the program and developers must include any backup generators in their assessments.
In contrast, data center projects with lower on-site emissions may qualify for more streamlined modeling and permitting requirements in some states. The Texas Commission on Environmental Quality (TCEQ), for example, allows data center developers to use a simplified permit by rule program for minor source air permitting.
What this evolution means for developers
With growing regulatory focus on air modeling, developing a defensible and realistic air permitting strategy during site selection due diligence is becoming more crucial for data center developers. A project’s air quality impacts can quickly turn approval into denial if developers do not account for potential issues such as proximity of sites to environmental justice communities or nonattainment areas.
Developers should consider how differences in site layouts and structures can impact air modeling outputs. Factors including the proximity of backup diesel generators to data center buildings, the types of generator exhaust stacks (e.g., short or horizontal, which are poor for emissions dispersion versus vertical and uncapped, which are better), and data center size and site layout can all create additional air quality compliance challenges.
ERM’s recommendation
Start modeling sooner rather than later: By starting air quality modeling during site due diligence, data center developers can better incorporate potential impacts into their site-selection process, helping ensure that projects are not derailed by unexpected local air quality affects and their subsequent consequences for local communities. Early air quality assessment can also enable developers to incorporate design modifications (e.g., setbacks, stack heights) into conceptual master planning and preliminary engineering that will lessen compliance burdens and improve the likelihood of permit approval.
Backup diesel generators under the microscope
The regulatory evolution
While backup diesel generators have long been features of data center power supplies, the sheer number of generators in use is growing rapidly as new data center capacity accelerates. This growth is putting these generators under microscopes, as U.S. state regulators look to reduce the air quality impacts that result from their increased numbers.
For example, Minnesota utility regulators rejected a developer’s request to exempt the installation of 250 generators at a proposed data center from the state’s Certificate of Need process. This process required the developer to justify the necessity of its generators and prove that no cheaper and cleaner alternative power source existed. The developer argued that because the generators were solely for backup use, they should not be classified as a power plant and thus should not require a certificate. However, after their bid for Certificate of Need exemption was rejected—along with other contributing factors—the developer ultimately abandoned the project. A similar story played out in Maryland, where the Public Services Commission denied a developer’s request to exempt a data center’s 168 generators from state air emissions laws. The developer subsequently withdrew the project.
Secondary pollutants (e.g., ozone precursors, fine secondary particulate matter, etc.) produced by backup diesel generators are also drawing regulators’ attention. Washington State’s proposed Data Center General Order, for instance, would require that all data centers use EPA-certified Tier IV diesel generators, which generate significantly less ozone precursors like NOX and particulate matter due to their use of advanced filtering technologies, which other tiers of generators lack. Oregon, on the other hand, provides streamlined permitting for data center developers that use Tier IV generators (or Tier II generators with Tier IV-equivalent controls).
What this evolution means for developers
As large fleets of backup diesel generators become more common at data centers and attract regulators’ scrutiny, developers risk project delays if they do not carefully consider their air quality impacts and associated permitting requirements in their planning processes.
ERM’s recommendation
Engage and assess every step of the way: Regulatory scans of state Certificate of Need and other on-site power requirements can help protect developers from permitting surprises further along the development process. Other options developers can pursue to facilitate smoother permitting when generators are involved include limiting their use to data centers that require high uptimes, using more aggressive emissions controls, reducing their operational time, and making design changes to reduce generator needs in the first place.
Engaging local and state regulatory agencies before, during, and after permitting also helps data center developers work towards a codeveloped path forward that accounts for both parties’ needs and helps avoid potential pain points throughout the process. For example, by meeting with relevant regulators before permit approval, data center developers can better understand the permitting process and proactively address any compliance concerns, thus reducing the risk of project delays.
Contrasting regulatory approaches likely to sow confusion
The regulatory evolution
While U.S. states intensify their efforts to regulate data centers’ air quality impacts, the federal government is moving in a different direction as regulators look to lay the permitting groundwork for rapid data center expansion.
Take the case of backup diesel generators. Under the Clean Air Act, operators can run these generators indefinitely during emergencies such as grid outages, but for only 100 hours annually in non-emergency situations. Of those 100 hours, operators can only use 50 for grid support purposes (e.g., avoiding local power supply interruptions).
In May 2025, the EPA published a fact sheet and frequently asked questions document that clarified the conditions in which data centers’ backup diesel generators could operate under the 50-hour rule for grid support purposes. In the accompanying press release, the EPA also noted that it was “evaluating more substantive changes” to these regulations—a statement that some interpreted as a signal that the regulator may allow backup diesel generators to operate beyond their current 50 grid support hour limit in the future.
This EPA document was followed by a July 2025 Executive Order (EO) aimed at accelerating the federal data center permitting process. Notably, the EO directs the EPA Administrator to develop or modify regulations under the Clean Air Act, the Comprehensive Environmental Response, Compensation, and Liability Act, the Toxic Substances Control Act, and other relevant laws.
Together, these developments do not bring immediate changes to the federal air permitting process for data centers. However, they do signal a willingness among federal regulators to streamline data center permitting at a time when many state regulators are expanding regulations to require modeling and controls for these sites to combat growing air quality impacts.
What this evolution means for developers
With some federal and state data center air quality permitting processes diverging, developers are likely to face a complicated and uncertain regulatory landscape for the foreseeable future. In this muddled environment, developers who do not proactively account for future changes in their development plans and data center designs are likely to experience higher project costs and extended permitting timelines.
ERM’s recommendation
Begin permitting ASAP and implement a phased permitting process: Time is of the essence in today’s evolving regulatory landscape. Permitting early (even for multiple design options) provides data center developers with buffer time to understand and accommodate shifting regulatory approaches and their associated timelines, while phased processes help ensure whole project plans are not upended by unexpected changes. Further, by keeping regulators abreast of project changes throughout the process and giving them the opportunity to provide feedback, developers can adjust their approaches, potentially saving time and protecting against future roadblocks.
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Europe, Africa, and Asia-Pacific Data Center Permitting Not all approaches to data center permitting are the same. While the U.S. federal government prioritizes speed, other regions are taking different approaches that account for their own economic, environmental, and social circumstances. Rising visibility drives regulatory shifts in developed economies Data centers in Europe and developed APAC and Africa have historically operated below regulator’s radars, that is compared to other sources of air emissions. However, regulatory scrutiny of data centers’ air quality impacts have risen as concerns over the impacts of their rapid expansion grow. As in the U.S., the regulatory landscape in these regions is highly fragmented. National and subnational air permitting regimes are variable, sensitive to local nuances, and inconsistently applied. Despite these complexities, a few common regulatory trends are emerging. Most regulators require data center developers to conduct air quality impact assessments for data centers ranging from small booster stations to gigascale projects as part of wider permitting processes. These assessments are increasingly complex and must account for a wide range of variables including where baseline air quality exceeds legal standards, cumulative impacts for data center clusters, and in some jurisdictions, sensitive ecological receptors impacts. As an example, while the regulation of back-up diesel generators falls under European Union-wide Directives, in practice national regulators apply these rules differently. These application differences drive complexity and increase costs because of the need for bespoke assessment and data center design to meet local standards. Regulators are also evaluating ambient air quality requirements. On the outskirts of London, the borough of Slough has recently become a data center hotspot, a development that has contributed to it being the only local authority in the UK to see its commercial emissions rise since 2005. In response, the borough has proposed an Air Quality Action Plan, which would set a target to achieve borough-wide NO2 levels of less than 35 μg/m³ by 2028 and revoke all Air Quality Management Areas by 2030. Similar stories are emerging across Europe and APAC. Emerging economies in Asia-Pacific and Africa Data center projects in emerging economies face the same challenges as those in developed economies. However, there are further challenges that increase the complexity and difficulty of obtaining project approvals. International guidance lags the rapidly developing sector and regulatory naivety can mean that developers have to undertake significant worker upskilling. Fragile grid infrastructure in emerging economies is also a key challenge that can lead to higher air emissions when power demand is met by generators. One such example comes from a South African data center project where the on-site back-up diesel generators could potentially operate en masse for hundreds of hours per year to provide power during grid outages. These unique pressures in turn drive very different design and operational requirements in emerging economies than those seen in developed countries. |
The bottom line
Data center developers operating today face a multi-faceted (and sometimes conflicting) regulatory environment. On one hand, many local regulators in the U.S. are tightening air quality requirements in response to growing local impacts and stakeholder concerns. On the other hand, federal regulatory actions in the U.S. signal a more permissive approach could be on the way. While these contrasting approaches pose challenges for developers, they are not insurmountable.
With over 20 years of data center permitting experience, ERM knows how to help developers navigate these challenges and deliver projects on time and on budget. Whether proactive modeling, frequent and consistent regulatory engagement, or early and incremental permitting, developers have the solutions they need to succeed. By partnering with ERM, clients can take full advantage of these solutions—backed by strategic and technical advisory across the entire capital asset lifecycle, from concept to operations—helping future-proof their projects and put their businesses on the path to meet the demands of the digital economy.
