MediaTalk | Season 4 | Ep. 38 - Data Center Debates: Tax Incentives, Emission Increases & Sustainability

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Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with the S&P Global Market Intelligence tech, media, and telecom news team. Welcome to "MediaTalk," a podcast hosted by S&P Global Market Intelligence, where the news and research staff explore issues in the ever-evolving media landscape. Today we're going to delve a little deeper into a couple of areas "MediaTalk" has touched on before: artificial intelligence and data centers. Recent warnings of potential for nefarious doings, including perhaps the emulation of the human race, have led to calls for pausing or slowing down the growth of AI.

For his part, California Governor Gavin Newsom has just issued an executive order to accelerate the implementation of third-party oversight of safety and security risks in AI systems. The order convenes experts to provide, within two months, a guide to reinforce California's AI safety laws.

Meanwhile, President Trump, on Truth Social, has called for further development so the US won't fall behind in the AI race overall. Trump has said he was launching an AI force, a new government entity focused on AI, after several tech industry figures raised safety concerns. With us today is tech and regulatory reporter Stefan Modrich, who just published an incisive article about the energy and emission controls efforts around AI data center infrastructure. How are you doing today, Stefan?

Stefan Modrich: Hey, Mike. Doing well. Good to be with you.

Mike Reynolds: All right. Also, say hello to our boss, Sarah James, who is also the editor of "MediaTalk."

Sarah took a hard look at tax incentives that have helped build out data centers, and now, with the repeal and rollback, the states and communities are looking to better regulate data center development. Sarah, how are you?

Sarah James: Doing great, Mike. Glad to be here.

Mike Reynolds: All right. AI implications and applications aside, the world's largest technology companies have continued to build out AI infrastructure, and energy and higher emissions considerations are very key components. Stefan?

Stefan Modrich: Yeah, that's right, Mike. We've seen a huge influx in spending. Our Visible Alpha trackers have estimated in excess of $1.1 trillion in CapEx spending from the big hyperscalers—your Amazon, Alphabet, Microsoft, and Meta of the world. And obviously, one outcome of this has been an increase in energy. This has been a development that we've been tracking for years. But the emphasis on the clean energy side, whether that's solar and wind, geothermal, or nuclear, there's been increased interest in this as we've seen the electricity consumption continue to climb.

And so, as a result, you're seeing really significant increases in those greenhouse gas emissions each year.

Mike Reynolds: Got you. Stefan, your piece talks about clean energy purchases, but there are concerns if that really translates into any real-world emission changes.

Stefan Modrich: It is.

And among the experts that we spoke to about this was Mark Dyson, who's the managing director at RMI. The concern is whether or not, essentially, to use a phrase that is common in tech, but also kind of transcends into other areas of net zero and emissions, is greenwashing.

And basically, are these clean energy purchases really making an impact, or are they just kind of write-offs in the emissions space? So that is a concern among a lot of people who are experts in tracking these big tech emissions outputs.

Mike Reynolds: Interesting. You, Stefan, you also did some sustainability scorecarding for some of the bigger players here.

Stefan Modrich: Sure, sure. And it won't be any surprise to our readers who have been following along with this as closely as we have, but the hyperscalers that did publish sustainability reports for 2026 or 2025—both Microsoft and Amazon—reported increases in their total emissions.

So in Microsoft's case, across all three scopes—Scope 1, 2, and 3—their greenhouse gas emissions increased by twenty-five percent year over year compared to the fiscal year 2025. And of course, that's due to its efforts to expand its AI infrastructure build-out.

At the same time, though, the company did say that it reached a milestone matching one hundred percent of its global electricity consumption with renewable electricity. And you might be wondering, where is that renewable electricity coming from? So, some of it is already present in those local power grids.

They also have the ability to separately match some of that renewable electricity, which totals about thirty-four point five million megawatt hours. And so, that accounts for roughly ninety-three percent of the thirty-seven million of Microsoft's total global electricity consumption.

Mike Reynolds: Is there—Microsoft, I think, is talking about being carbon negative by 2030. Is that realistic?

Stefan Modrich: That was something that we had hoped to get more information on. Unfortunately, Microsoft declined to provide additional comment to us on that.

Mike Reynolds: I got you. What about Amazon? How did they do?

Stefan Modrich: Similar story there. You're looking at a 16% increase in their carbon footprint compared to 2025. And the intensity of that carbon emission rose 3% year over year. Compared to a 2019 baseline, they were 38% below, according to the report, so that is a step in the right direction as far as Amazon's concerned.

Similar to Microsoft, Amazon reported that it matched 100% of their electricity consumption with renewable energy, in their case, for the third straight year. And they're also investing in things like carbon-free generation using nuclear power and those small modular reactor technologies, and they've got a net zero target of 2040.

Mike Reynolds: Okay. All right. All right. If there are major energy and emission concerns around data centers, there's also a tended increase in awareness around tax incentives and exemptions around data center development. And this is occurring within the midterm election cycle come November 3rd. It's coming close.

Sarah, can you give us an overview of the considerations around tax incentives for data centers? And now some legislatures are looking to pause or repeal the same.

Sarah James: Yeah. So a little bit of history here. A lot of states had been adopting these sales tax incentives specifically for data centers, and they mimic a lot of the sales tax incentives that already exist for manufacturing—any kind of manufacturing hub or warehouse that is going to be building or creating jobs, factories, that kind of stuff.

It's meant to incentivize that development. And so a lot of these tax incentives were adopted across red states and blue states to try and attract development in their state, because a lot of money is coming in from these data centers. And it's only within recent years, and even, in some cases, within recent months, that there has been a lot of lawmakers at the state level saying, "Wait a second. How much money are we leaving on the table by offering these sales tax incentives, and is this something we should be doing?" And so we've seen a number of states either go in and, in some cases, repeal state tax incentives that they had only put in place within the last five years, or in other cases, put some tighter restrictions around who is eligible for them, whether that's on limiting them based on how many jobs you are creating, what is the level of investment you're bringing in, where is your energy coming from, some of that kind of stuff.

Mike Reynolds: Yeah, as you said, there's, I think, five states—Arizona, Illinois, Massachusetts, New Jersey, and Ohio—they paused their sales tax exemption or benefit programs, while Maine, Minnesota, and Nebraska repealed them. Anyway, these tax incentive shifts, if you will, are coming during the election cycle.

Are these major issues in terms of a lot of state races on the governor side at all?

Sarah James: So it's funny because, if you had asked me that question, I'd say, even two to four years ago, I would say no. No one at the state level is thinking about data centers.

There are no experts on data center development within the state houses and... But for this year, it is very much the case that this has become a populist issue. You've got a lot of activity at the NIMBY level—not in my backyard—where voters care about this. They care about it a lot.

And so it has become a talking point, especially at the state level for governors, where we've seen a number of governors pass executive orders that are either creating moratoria, like we saw in New York, or—you mentioned Gavin Newsom at the beginning of this—putting restrictions on data centers.

And again, it's not just the Democratic states, but you've also got Republican governors that are also limiting sales tax incentives to data centers. And so yeah, a lot of this is happening at the governor's desk.

Mike Reynolds: All right. A lot of moving parts here. Stefan, let's return to the energy side. Your piece, you wrote that investors and policymakers—the results illustrate why clean energy purchases alone don't necessarily reduce emissions overall.

Stefan Modrich: Yeah, that's right. And one thing that I didn't include in the piece, but I think is a useful way to think about this, is when you're looking at the grid, the grid is basically like a big blender.

So, whether the power's coming from coal, natural gas, nuclear, wind, or solar, that's all coming into the same transmission network. So it's really next to impossible to route what you would call a clean energy source directly into the wall outlet in your house unless you have a dedicated wire, like the tap water system in your home that you know is...

Mike Reynolds: Coming—So you say it's all melded together in some capacity.

Stefan Modrich: Absolutely. It doesn't mean that there's not a good reason to have clean renewable energy. There absolutely is. It's just, when you're accounting for it, it's largely an attributional thing. You can show that a company has matched their electricity consumption with clean energy, but that does not necessarily mean that the energy that's procured is making the overall power cleaner that's being generated, if that makes sense.

Mike Reynolds: Okay. So you mentioned attributional and the consequential emission impacts—some standards are starting to take shape, however?

Stefan Modrich: What appears to be, like, the definitive authority in this space is a group called the Science Based Targets initiative.

And so they have crafted what they call their Corporate Net Zero Standard, version 2.0—they recently revised it. And what this means is it requires a company with a rapidly growing electricity demand—so for their purposes, they define this as growth above 20% over a target cycle—to set their Scope 2 emissions reduction targets.

So their hope by setting the standard is that it will incentivize companies to prioritize directly decarbonizing within their operations and value chains before turning to market instruments once other available levers have been exhausted.

Mike Reynolds: Okay. All right. Voluntary standard goals are one thing, but, this is business, Stefan. Any sense for how this is manifesting in terms of, people want to make money in this growing world here, in this growing realm?

Stefan Modrich: Sure. So, there is this concern of trying to strike this balance between growth and also trying to meet their environmental commitments.

And at the end of the day, especially if they're a public company, their obligation is to their shareholders and to profit. And we have seen that sometimes these environmental goals are secondary to the AI and data center infrastructure build-out, because that is, at some level, existential to the continuity of their business.

Mike Reynolds: All right.

Let's go back to the tax side here. We mentioned earlier that five states had paused their sales tax exemption or benefit programs, while three others had repealed them. Sarah, though, reading your piece, you detail the number of other tax and cost-related changes that occurred at a number of other states.

Sarah James: Yeah. And just to clarify on those numbers you mentioned earlier, the eight states that had either paused or repealed their tax exemptions, that was just in the span between May and August. So when you're talking about…

Mike Reynolds: Yeah, it was a really busy four months, crazy.

Sarah James: It was a really busy summer. And so when you're talking about the impact of the midterms, that's the kind of activity we're seeing. But yeah, in addition to those states that we mentioned above, in August, Pennsylvania's Governor Josh Shapiro, who had previously supported data center development, signed an executive order restricting the sales and use tax exemption to data center operators that comply with what he has labeled the GRID requirements—the Governor's Responsible Infrastructure Development Requirements.

And those cover power, sustainability, labor, and community engagement concerns. And it's worth noting that Shapiro is one of the governors that is up for re-election this cycle. So again, you're seeing just a lot of activity ahead of those midterms. Delaware's Governor Matt Meyer, who's also a Democrat, signed a package of energy consumer protection bills requiring data centers and other large energy users to pay for their own infrastructure costs.

Notably, Delaware is, of course, famous for not having a sales tax at all. And you're seeing even for states that either don't have a sales tax or that don't offer sales tax exemptions, even they are taking steps to restrict data center financial incentives within their states.

North Carolina legislators repealed the state sales tax exemption on data center energy usage—so not the broader sales tax exemption, but specifically targeting that sales tax on energy usage. And so that makes electricity purchases by data centers subject to the combined 7% state and local sales tax in that state.

And then we also saw Illinois Governor J.B. Pritzker, Massachusetts Governor Maura Healey, and Ohio Governor Mike DeWine—they have all indefinitely paused the acceptance of new data center sales tax exemption applications for their state review. And so that's essentially, to qualify for the exemption, the data center developers have to submit some paperwork, and basically the states I just mentioned are just not taking new applications. And so it's an indefinite pause. And then in Arizona, Governor Katie Hobbs approved a state budget that includes a three-year moratorium on the state's data center sales tax exemption.

So that one's not an indefinite pause, but it's a pause for the next three years. And so all four of those states that I just mentioned have gubernatorial elections in November.

Mike Reynolds: I got you. I got you. All right. Let's turn to Virginia, which is home to the Data Center Alley. I believe the Commonwealth, in particular, has had some interesting developments.

Sarah, can you talk about the role data centers play in Virginia's budget?

Sarah James: Yeah. Virginia is a really interesting case because it's an off-year election cycle for them. Gov. Spanberger is not up for re-election this year.

But they had what one source called a real knockdown, drag-out fight in the budget-setting process, specifically over data centers and the sales tax exemption that exists there. And so after going back and forth, what they settled on was retaining the exemption but then creating basically a new tax called the Data Center Electricity Consumption Tax, and it subjects every data center operator to a tax equal to 1.1 cents per kilowatt hour of all electricity consumed per month. Collections are capped at $600 million annually, or $1.2 billion over the life of the tax.

And so that comes after a January report from the Virginia Department of Taxation estimated that the existing sales tax benefit for data centers totaled $1.2 billion in 2024 and $1.94 billion, almost $2 billion in 2025. So that's how much that sales tax exemption was saving data centers.

Mike Reynolds: Yeah. I don't have my calculator there, but that's a big jump. So anyway, you mentioned Governor Spanberger, a Democrat. She also recently issued an executive order that immediately put several provisions of the Data Center Accountability Framework into effect. Sarah, what does that mean?

Sarah James: Yeah, that executive order is not wholly unlike some of the other executive orders we've seen from other states. It basically establishes an AI task force to examine the risks associated with the rapid build-out of AI. It also bans non-disclosure agreements. Those have become a really popular talking point among state lawmakers, where a data center developer would go into a particular locality and require county-level representatives to sign these ironclad non-disclosure agreements.

They couldn't talk about how much water was being agreed to or any of the ins and outs of the contract. And so then community members would maybe only find out after a project had been approved at the county level that a data center was being developed, and then they could find out no information about what the local water or electricity requirements were going to be.

And so a third pillar in Governor Spanberger's executive order requires the state's utilities to allocate a more equitable share of electric transmission and generation costs to data centers. Basically, this idea that we've seen touted about, this ratepayer protection, where we don't want consumers having to shoulder the cost of this extra electricity generation and consumption.

Mike Reynolds: Yeah, that seems to be a general hue and cry.

Sarah James: Absolutely.

Mike Reynolds: All right. Again, local level impact of data centers in Virginia?

Sarah James: Yeah, and so this is what, when you talk to the Data Center Coalition, for instance, they will say it's not really fair to talk about those high-level numbers, right? The $2 billion, the $1 billion that's being, quote unquote, "left on the table" by exempting data centers from the sales tax, because they know that data center operators do pay taxes for all sorts of things, and it's not really fair to focus on that one particular exemption. And in Loudoun County, for instance—like you said, Data Center Alley—the Loudoun County Preservation and Conservation Coalition estimated data centers will pay roughly $1.14 billion in real and personal property taxes in 2026, equivalent to 42% of the county's local tax funding.

And so that money is going to Loudoun County schools, it's going to Loudoun County parks, it's going to all sorts of services. And even if they're exempt at the state level from a sales tax, they are paying taxes, and it does have real benefits to the community.

Mike Reynolds: Okay. All right. Stefan, you live in the DC area.

What did you make of Governor Spanberger's unveiling of this comprehensive and aggressive accountability standards for existing and new data center projects in the state?

Stefan Modrich: I definitely think it's an interesting development, and I've had the chance to speak with the representative whose district encompasses Data Center Alley in Loudoun County—Suhas Subramanyam.

And he has been very adamant in his assessment of the overall picture, that the ratepayer protection and the environmental concerns and the whole host of concerns that have been raised at the community level requires a national solution and not just a local solution.

I can share that he has, I think, been trying to strike this balance of, to Sarah's point about the tax revenue and the public service benefits that come with that participation in the local economy, and then all the trade-offs and maybe the eyesores or the noise or the unsightly parts of what the presence of data centers may bring to a given community.

So, on the ground here, just across the Potomac River in Montgomery County, they had recently voted to extend a moratorium on data centers there for 18 months on any new developments.

So I think this has been a national trend that has started at the grassroots and local level. And, just looking even at some Ballotpedia data here, we're going to see 35 different jurisdictions across eight different states all voting on some ballot measure or referendum related to data centers this November.

Mike Reynolds: Yeah, that's a thing. Our sister company, 451 Research, Sarah, they put out a little scorecard too about local activity and local opposition.

Sarah James: Yeah, our 451 colleagues estimated that as of June, 47 data center projects had been contested, delayed, or canceled.

And that was a significant uptick from the 53 projects that were delayed or canceled counted in full year 2025. And so this is having a real impact on projects on the ground, where maybe a site had been chosen and then construction was paused, or canceled because the community members came out in force and said, literally, "Not in my backyard."

Mike Reynolds: Again, 451 noted that there are a lot of reasons for public pushback, but the two most common concerns involve power and water use.

Sarah James: Yeah, and it's really a matter of, one, you're seeing a lot more developments going up. We've got more and more companies trying to build more and more data centers, including not just the hyperscalers, but also developers.

And then you've also got the build of these new AI data centers, which consume so much more electricity. And so, US data center power demand was estimated at about 195 terawatt hours in 2023, according to 451. For 2026, that demand is expected to more than double to 411 terawatt hours before reaching close to 1,000 terawatt hours in 2030.

Mike Reynolds: Okay. Stefan, this is at the center of why companies need to become more efficient and cleaner with the data center development.

Stefan Modrich: It is, and I think a really interesting quote that I got in a conversation with Analog Devices Incorporated's head of ESG, Mary Farris. She said that we know that our investors want to see us grow, and so ADI reported the 42% reduction in combined Scope 1 and 2 emissions from their 2019 baseline. And they also established an interim upstream Scope 3 target of 35% reduction by 2030.

And so the rationale behind that, she told me, was that they felt like having that level of a target gave them the comfort that they were going to be able to grow at the pace that they needed to while still showing some substantive reduction in their emissions.

So for a lot of these companies, this is very much a balancing act, and it's going to require a lot of creativity in how you can shift those emissions around to still be able to manage all the various complicated supply chain and manufacturing commitments that you need to fulfill.

Mike Reynolds: Okay. All right. That concludes this episode of "MediaTalk." Many thanks to Stefan and Sarah for making some sense of the key dynamics shaping the increasing proliferation of AI and data centers. You can check out their and other S&P Global stories on these important subjects on the CapIQ Pro website.

I appreciate you two being here today.

Sarah James: Thanks, Mike.

Stefan Modrich: Thank you, Mike.

Mike Reynolds: All right. And thanks to all of you for listening. This is Mike Reynolds. We'll catch up soon on the next installment of "MediaTalk."