Why It Matters
A Congressional Research Service report on congressional authority to regulate data centers published September 3 maps out the constitutional tools Congress could deploy to shape how artificial intelligence infrastructure is built and operated across the country.
The central tension is that data center regulation has historically been a state and local matter, but the scale of AI infrastructure buildout has created resource and ratepayer impacts significant enough that Congress may want to assert a greater federal role. Large-scale investment in AI has led to rapid buildout of hyperscale data centers that consume large amounts of electricity and water, sparking opposition to development and calls for increased regulation, including state-level moratoriums.
The Big Picture
The report identifies three main constitutional hooks Congress could use: the Commerce Clause, the Taxing Power, and the Spending Power. Under the Commerce Clause, Congress could directly regulate data center design, siting, construction, and operation because lower courts have widely held that the internet is both an instrumentality and a channel of interstate commerce, and data centers perform vital functions in the international network of interconnected computers that comprise the internet. No court has directly addressed whether data centers fall within Commerce Clause categories, leaving that legal pathway untested.
Through its Taxing Power, Congress could impose indirect taxes that discourage data center developers from engaging in certain practices or create tax credits to encourage them to take specific actions. Proposed bills in the 119th Congress would tax electricity that data centers consume, eliminate existing tax benefits for AI data centers that do not meet specified environmental criteria or do not enter into legally binding community benefit agreements, and create tax credits for facilities that invest in water reuse projects.
Congress could shape data center buildout through its authority to spend federal funds by subsidizing favored forms of regulation or development and by attaching conditions to federal funding that require recipients to comply with statutory directives. Proposed bills would provide grants to assist state regulators in developing new electric utility rate structures that allocate certain costs to data centers and would require state regulators to certify, as a condition for receiving certain Department of Energy grant funds, that their electricity rates for residential and small business customers do not reflect costs of meeting data centers' electricity demand. Congress must provide unambiguously clear notice of any funding conditions, and such conditions must generally relate to the purpose of the relevant spending, must advance the general welfare, and cannot themselves violate the Constitution or induce unconstitutional action.
The Supreme Court has held that federal funding conditions cannot be unduly coercive and must leave states with a legitimate option of forgoing funding rather than acceding to funding conditions. Proposed bills would direct state regulators to consider revising rate structures to ensure that large electricity consumers, such as data centers, bear the costs of meeting their electricity demand, an approach that Congress can use to require state and local governments to consider within a given time frame whether to adopt specified policies to continue regulating in an area.
On preemption, Congress could employ a broad preemption clause to remove state and local constraints on data center buildout and operations, or it could more narrowly preempt state and local laws by barring them only to the extent that they are in addition to, or different than, federal statutes.
Congress could also promote joint federal-state implementation of national policies, following the cooperative federalism model exemplified by the Clean Air Act and Clean Water Act, which set minimum federal requirements but expressly preserve states' authority to adopt air and water regulations that go beyond the federal requirements.
The Bottom Line
Proposed bills in the 119th Congress would bar new construction of AI-related data centers, require data centers to obtain electricity from off-grid sources, and require data centers to obtain water from sources other than their local utilities. The anti-commandeering doctrine forbids Congress from ordering state legislators or executive branch officials to act or refrain from acting in certain ways.
Spot something wrong? Report an issue with this article