Data Center Boom Faces Litigation, EU Rules, and Foreign Investment Hurdles

Data center buildout is accelerating globally, with expenditures projected to reach $7 trillion by 2030, but the rapid expansion is hitting legal and regulatory barriers across multiple fronts. The Trump Administration has made data center buildout a national priority, directing agencies to fast-track permitting and remove regulatory hurdles, while local communities, states, and advocacy groups are pushing back with moratoria and litigation. In parallel, the European Union is drafting rules that could restrict Big Tech's access to strategic cloud tenders, and sovereign wealth fund investments in data centers face heightened national security scrutiny.

Local moratoria on data centers are spreading nationwide, with one tracker reporting that more moratoria were adopted in June alone (80) than in all of last year combined (59). Fierce debates over data centers have been front and center in several recent primary races for congressional seats. This backlash has generated a new wave of disputes and litigation, as communities raise concerns about environmental impacts, transparency in agreements between regulators and developers, and the social and economic implications of AI technology.

Litigation over data centers is raising novel issues under the Clean Air Act and Clean Water Act citizen suit provisions. In NAACP v. X.AI Corp., the NAACP brought a citizen suit against xAI and its subsidiary MZX Tech LLC, alleging that the fleet of gas turbines powering xAI's Colossus data center violates the Clean Air Act. The U.S. Department of Justice, representing the U.S. Government, has moved to intervene as of right as a plaintiff and to dismiss the suit, arguing that allowing the case to proceed over the Executive Branch's objections would raise separation of powers concerns under Article II. The plaintiffs allege that xAI has constructed and is operating over 33 natural gas turbines without the requisite permits and/or in violation of emissions standards. The defendants contend that the gas turbines are temporary, trailer-mounted "mobile sources" exempt from Clean Air Act stationary-source permitting because they sit on flatbed trailers and are expected to remain on site for under twelve months. Data centers also use significant volumes of water for cooling purposes, raising water permitting, use, and contamination concerns.

The European Commission's proposed Cloud and AI Development Act includes strict criteria for cloud computing services in highly critical state tenders that could exclude Amazon, Microsoft, and Google from such projects, according to a draft document. The proposal introduces mandatory "non-price" criteria for public tenders, including requirements for software and hardware developed within the EU, which would disadvantage U.S. Big Tech. The draft also sets out a streamlined fast-track approval process for data centres which will get preferential grid access and reduced network charges for using European-made chips or cutting their energy costs. The Commission also proposed that it act as a central purchasing body for EU countries and institutions to procure data centre services, cloud computing services, software, and AI systems. The plan needs backing from the bloc's 27 countries and the European Parliament in the coming months and could draw backlash from Washington.

Governments are increasingly characterizing data centers as critical infrastructure due to their role in hosting sensitive data, supporting essential services, and enabling national digital economies. As a result, investments by foreign state-affiliated entities, particularly sovereign wealth funds, are subject to heightened regulatory scrutiny. The legal characterization of data centers—as real estate, telecommunications or digital infrastructure, or critical infrastructure—can trigger differing review requirements. Under the EU Energy Efficiency Directive, data centers with power demand exceeding 500 kW must report detailed energy performance data. California enacted Senate Bill 57, which directs the California Public Utilities Commission to study and identify opportunities to prevent or mitigate the impacts of data center electricity demand on utility ratepayers.