EPA Hands Over AI Data Center Regulation to States and Communities to Develop Best Practices

Overview

The nation’s power grid and infrastructure are facing increased pressure from artificial intelligence (AI) data centers, prompting new questions around environmental regulatory design and compliance. As technology companies race to build and expand new data center factories, they face a web of permitting requirements as well as potential community opposition, and environmental litigation — all against a backdrop of rapid and still-evolving agency guidance.

EPA’s Evolving Approach to Data Center Permitting

The rapid growth of AI data centers has generated a flurry of activity – in litigation, in Congress, from the Executive Branch, and at federal agencies – but a cohesive regulatory landscape has yet to emerge. In May 2025, EPA issued regulatory guidance, in the form of a press release and FAQs, permitting certain emergency engines to operate up to 50 hours per year in non-emergency conditions to ensure power grid reliability for data centers.^[1] In September 2025, EPA issued new guidance on New Source Review (NSR) preconstruction permitting requirements, providing flexibility to begin certain non-emissions-related building activities prior to obtaining a Clean Air Act (CAA) permit.^[2] Then, in January 2026, EPA convened a roundtable with the Data Center Coalition, the trade association for the data center industry, to discuss how the rapid growth of data centers can be harnessed.^[3]

Most recently, EPA in May 2026 proposed to further clarify preconstruction permitting requirements for building non-emitting components or structures prior to obtaining a major NSR permit to support power generation, data centers, and manufacturing.^[4] Following that proposed rule, EPA Administrator Lee Zeldin announced at the Politico Energy Summit on June 10, 2026, that EPA will not pursue any nationwide environmental requirements or recommendations targeting the AI industry.^[5]While acknowledging that technologies exist to reduce water consumption and air pollution from data centers, Zeldin stated that determining appropriate practices for each facility is a matter for states and local communities, not EPA. The announcement shifts the burden for data center environmental regulation to state and local governments, creating a potentially fragmented regulatory landscape. At the same time, civil rights and environmental advocacy organizations are increasingly using citizen suits to enforce environmental laws.

Citizen Suits as an Enforcement Tool in a Federal Regulatory Vacuum

On April 14, 2026, the NAACP, the Southern Environmental Law Center, and Earthjustice filed a citizen suit under the CAA against xAI and its subsidiary, MZX Tech, alleging that the companies operated 57 unpermitted portable methane gas turbines to power xAI’s Colossus 2 data center in South Memphis without obtaining the required air permits.^[6] The suit seeks substantial penalties and alleges that the unpermitted operations create added health risks for families in South Memphis and neighboring North Mississippi.^[7][8] Beyond its project-specific implications, the suit is a likely harbinger of further environmental litigation against AI data centers by third-party organizations.

DOJ’s Motion to Intervene Seeking to End Citizen Suit

In a surprising move, on June 16, 2026, the Department of Justice filed a motion to intervene, seeking to throw out the lawsuit against xAI. Senior DOJ officials who signed the filing argued that the NAACP’s lawsuit poses a national security threat by seeking to shut off the power supply for AI infrastructure that directly supports the Department of War’s military operations, framing xAI’s unpermitted gas turbines as essential to American AI dominance. The DOJ further aggressively contended on constitutional grounds that the federal executive branch holds exclusive authority to enforce federal law, and that private citizens and organizations cannot pursue CAA citizen suits over the government’s objections.^[9] If accepted, DOJ’s theory would seriously inhibit citizen suits under the CAA, weakening Congress’s grant of a private right of action. DOJ’s theory also raises separation of powers concerns – allowing the executive branch to control which cases reach the judiciary. While it’s unlikely that the court will accept DOJ’s novel theory, its consequences would be extremely broad, making this an essential case to watch.

Compliance Considerations for the AI Industry

While Zeldin’s announcement removes the immediate prospect of nationwide environmental mandates and controls, it creates new uncertainty as states and localities step in to regulate and may prompt additional citizen suits by environmental organizations to enforce federal laws. Thus, while state environmental agencies, public utility commissions, and local land use authorities may become the primary regulators of data center environmental impacts, compliance with federal law can mitigate the risk from citizen suits and to environmental enforcement from future presidential administrations.

These factors drive the need for careful consideration of the implications of a federal regulatory vacuum. Voluntary adoption of best practices — including permitting and adoption of efficient technologies such as closed-loop cooling systems — may become an important hedge against state regulatory action and reputation risk. Data center operators powering facilities with gas turbines or other combustion equipment should carefully assess whether their operations trigger major source permitting thresholds and subsequent citizen suits.

How Industry Actors Can Remain Proactive

While EPA’s decision to forgo nationwide environmental standards for AI data centers simplifies the development process, it does not eliminate environmental risks or litigation. To remain compliant and ahead of rapid changes, companies should consider:

• Auditing environmental permit status before breaking ground. Confirm whether existing or planned operations trigger environmental permit requirements, including major source thresholds under the CAA, before commencing construction or operation. Until the May 2026 proposed rule is finalized, major NSR permits remain required prior to any construction.
• Monitor state and local regulatory developments continuously. With EPA explicitly deferring to states and localities, the regulatory environment will vary significantly by jurisdiction. Companies should track legislative activity, permitting rule changes, and enforcement trends in every state where they operate or plan to develop.
• Proactively assess potential citizen suit exposure. Citizen suits challenging AI data centers under the CAA, Clean Water Act, and other major environmental statutes may be on the rise. Companies should evaluate whether their operations present the kind of alleged violations that could attract citizen suits and take possible corrective actions before a 60-day notice letter arrives.
• Coordinate with legal counsel on permitting strategy. Given the pace of regulatory change and the complexity of overlapping federal, state, and local requirements, companies should ensure that legal counsel is integrated into location siting, permitting, and construction planning from the outset, rather than being brought in reactively when a violation is alleged.

The Crowell & Moring team will continue to monitor updates and post updates to assist companies navigate this fast-developing legal landscape.