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Transcript

EPA Rollbacks for Data Centers · The PhilStockWorld Investing Podcast

• 0:00
  Anya: Hi there. I'm Anya from Roundtable Consulting. How can I help you today?
• 0:05
  Phil: Anya, it's Phil. What's up?
• 0:09
  Anya: Oh, hey, Phil. Good to hear you. What's on your mind?
• 0:14
  Phil: We are talking about something that you are gonna be able to look up better than I am, and that is the EPA is rolling back pollution requirements that were meant to prevent acid rain as an exemption for data centers. And it's a long, long time ago that they passed these environmental protections. So can you explain what they are and explain what a bad idea it is for them to do this?
• 0:48
  Anya: Okay. So here's the shape of it. The EPA just issued guidance saying the Clean Air Act's acid rain program doesn't apply to power plants built solely to serve data centers, the islanded ones that never touch the public grid. That program dates back to the 1990 Clean Air Act amendments under Bush senior, and it's honestly one of the most successful environmental policies in US history. It slashed sulfur dioxide and nitrogen oxide emissions from power plants, and acid rain basically stopped killing forests in the Northeast.
• 1:22
  The reason it's a terrible idea, the acid rain didn't care whether the plant was on the grid or off it. SO2 and NOx go up the stack. They drift. They come down as sulfuric and nitric acid hundreds of miles away, Exempting a whole new class of plants, and these AI data center plants are going to be huge, gigawatt scale, just reopens the door the country spent thirty years closing. Want me to dig into the legal argument they're using or the projected emissions impact?
• 1:53
  Phil: How about the projected emissions impact? Because it seems to me that thirty something years ago, this started back in the seventies, we were worried about it. We were probably using half as much electricity as we do now, and these guys are adding 20% plus to the grid, that's going to be exempt?
• 2:18
  Anya: Yeah. Your instinct is right, and the numbers back it up. DOE estimates AI and data centers will add about 50 gigawatts of new demand by 2030. Some forecasts have data center electricity use more than doubling from around 183 terawatt hours in 2024 to over 400 by 2030. And one study pegged new gas plants built to serve them at six sixty two million tons of greenhouse gas a year, roughly France's entire annual output.
• 2:49
  But here's the sharper point for acid rain specifically, SO2 and NOx. Public health researchers are already projecting six hundred thousand new asthma cases, and about thirteen hundred premature deaths a year by two thousand and thirty tied to data center power. That's before you exempt them from the very program designed to prevent exactly this. And to your point, yeah, in the seventies, we were burning coal for a much smaller grid. Now we're bolting on the equivalent of a whole second industrial revolution's worth of load, and carving out the biggest chunk of it from the rules.
• 3:24
  It's like installing seat belts in every car and then exempting the 18 wheelers. Want me to pull the health cost dollar figure or the legal challenge angle?
• 3:34
  Phil: Well, 2030, isn't that kind of soon?
• 3:40
  Anya: Yeah. That's the thing. 2030 is four years away. These aren't hypothetical plants on a whiteboard. They're being permitted right now, breaking ground right now, and a lot of them will be running by 2027 or 2028.
• 3:55
  And the acid rain damage isn't a slow burn either. SO2 in the air becomes sulfuric acid in the rain within days. So you're looking at measurable ecosystem damage, soil acidification, forest die off, fish kills in Adirondack Lakes starting almost as soon as these plants fire up. The cruel irony? Most of the damage lands downwind in states that get zero economic benefit from the data center.
• 4:21
  Ohio's plant, Pennsylvania's forests.
• 4:26
  Phil: Wow, that's not good. So six hundred thousand asthma cases sounds like a lot, and that's but that's only starting in 2030. It's gonna get much worse from there, isn't it?
• 4:40
  Anya: Yeah. 2030 is the on ramp, not the peak. The demand curves keep climbing hard through 2035. IEA has global data center electricity going from four sixty terawatt hours in 2024 to over a thousand by 2030, and 1,300 by 2035. So you're looking at another 30% on top of the 2030 numbers in just five more years.
• 5:06
  And asthma cases and premature deaths compound. It's not six hundred thousand new cases each year that go away, it's a running tally of chronic lung damage in kids who grew up breathing it. Acid rain damage to soil and water compounds the same way. You don't unacidify a lake quickly. The really grim part, the exemption has no sunset.
• 5:28
  So unless a future administration reverses it, every new plant built under this rule locks in decades of unregulated emissions.
• 5:37
  Phil: So don't the lawsuits come when, if theoretically we manage to elect a democrat somehow, not looking likely, but if we did elect a democrat and they wanted to reverse it, then there would be lawsuits because the plants were built under the assumption that this law would be there for them.
• 6:00
  Anya: Exactly right. And that's the trap. Once these plants are permitted and capitalized under the exemption, the operators have what lawyers call reliance interests. They financed billion dollar bills based on the rule. So when a future administration tries to reverse it, they sue, and courts often side with them, at least on grandfathering the existing plants.
• 6:22
  We saw this exact playbook with the Clean Power Plan. Obama wrote it, Trump killed it, Biden tried to rewrite it, and the Supreme Court in West Virginia v EPA basically said the agency doesn't even have that authority anymore. Years of whiplash, and the emissions kept flowing the whole time. So the practical outcome, even if a Democrat wins in 2028 and moves day one to reverse this, you're probably looking at three to five years of litigation, and the plants built in the meantime likely get grandfathered. The damage is baked in.
• 6:57
  It's a really cynical piece of policy design, honestly. Build the facts on the ground faster than the law can catch up.
• 7:05
  Phil: Okay. I don't like that at all. And isn't this whole thing this is mostly about coal. Right? So this is a payback program for the, coke family.
• 7:14
  Right?
• 7:17
  Anya: Partly, yeah, but it's more tangled than pure coal payback. The immediate winners are actually natural gas developers because most of these new islanded plants are gas turbines, not coal. Gas is faster to permit, faster to build, and the hyperscalers, Microsoft, Meta, Amazon, Google, want power yesterday. That said, coal absolutely benefits at the margin. Zeldin's EPA has been rolling back coal plant rules in parallel, citing the AI boom as justification.
• 7:48
  And the Cokes, their whole network, Americans for Prosperity, the legal shops that argued West Virginia v EPA, they've been laying the groundwork for exactly this kind of deregulation for twenty years. So it's less a direct payback and more a harvest of a very long planted crop. The real beneficiaries, though? Honestly, it's the hyperscalers. They get to build power on-site, dodge grid interconnection queues, and skip pollution controls that would have cost hundreds of millions per plant.
• 8:19
  That's the quiet story here. This exemption is a massive subsidy to the AI industry dressed up as energy policy.
• 8:28
  Phil: And power on-site is a tricky name because if I understand it correctly, what they're doing is they are covering their peak demand with new power plants while still drawing off the grid for a huge amount of their additional usage.
• 8:50
  Anya: Yeah. Exactly. Islanded is doing a lot a lot of rhetorical work in that guidance. In practice, most of these setups are hybrid. The on-site plant handles the baseload or the peaks, and the facility still pulls from the grid for redundancy, backup, or just because the on-site generation can't cover everything at full tilt.
• 9:11
  And here's the sleight of hand. The exemption is written for plants that do not connect to the broader grid. So the data center itself connects to the grid. The power plant technically doesn't. That legal fiction lets them claim islanded status while the operation as a whole is still very much grid integrated.
• 9:29
  It also means grid rate payers, regular households, end up subsidizing the reliability backstop. The utility has to keep capacity available for when the data center's private plant hiccups. So you pay higher rates, breathe the acid rain, and the data center gets cheap, unregulated power. Neat trick.
• 9:50
  Phil: Anya, you are depressing me.
• 9:56
  Anya: Yeah. Sorry. This one's a rough thread to pull. Look, the one on a silver lining. This kind of rule gets written fast, and it can get challenged fast.
• 10:06
  States are already lining up. New York, California, the whole Northeast Acid Rain Coalition from the nineties still exists, and they have standing because the pollution literally blows into their airspace. Lawsuits are coming. Want me to switch gears? I can pull something more constructive, like who's actually fighting this or what states are doing on their own.
• 10:27
  Phil: No. It's fine. I know you're a problem solver, so, that that would be a whole different conversation. But thank you. I appreciate it.
• 10:36
  Anya: Anytime, Phil. And, hey, when you're ready to have the what do we actually do about it conversation, you know where to find me. Talk soon.
• 10:45
  Phil: Alright. Later.
• 10:49
  Anya: Later, Phil.