NIMBY Opposition to Data Center Siting: Managing Local Environmental Impacts and Litigation Risk

Localized environmental costs, community opposition, and mounting litigation risks are reshaping site selection and design strategy as AI-driven demand accelerates data center expansion.

Key Takeaways

• As data centers fast become part of core US infrastructure, communities are pushing back against new developments, citing limited economic benefits and high local costs.
• Potential negative environmental impacts include noise and air pollution and additional burdens placed on energy and water resources.
• Tensions increasingly lead to litigation and result in delayed or cancelled data center developments and significant costs.
• To maximize community acceptance and mitigate risk, data center siting strategies must factor in local impacts.

Data centers are becoming the core infrastructure of the twenty-first century as the sector undergoes an “infrastructure investment supercycle” to satisfy an explosion of demand for artificial intelligence (AI) and cloud computing services.

But, as with development of railroads and the power grid in the nineteenth and twentieth centuries, substantial opposition is emerging. Local communities have increasingly mobilized, claiming that data centers raise energy costs and create damaging environmental impacts, including a strain on water resources, noise pollution, and a decline in air quality.

These tensions have tangible effects on data center development. One report suggests that from May 2024 to March 2025 up to $64 billion in US data center projects were delayed or blocked due to local opposition. Another found that data center cancellations last year quadrupled, with litigation on the rise too.

The core issue: data centers’ benefits are vast yet diffuse, while negative externalities are largely local.

We unpack this dynamic and offer tools for developers and policymakers to fully account for such tradeoffs in their data center siting and design strategies.

Not in My Backyard (NIMBY): Data Centers’ Diffuse Economic Benefits and Localized Costs

Nineteenth-century farmers generally supported national growth brought by railroads but resisted the laying of tracks across their fields. Twentieth-century electrification was immensely popular, but no one wanted transmission lines behind their house. The interstate highway system was also central to the development of the US economy, even as communities fought against construction through their own neighborhoods. More recently, local opposition to renewable energy developments has significantly impacted investment.

In other words, the NIMBY response to infrastructure siting is not new. What is new is that NIMBY opposition is taking aim at the proliferation of data centers across the country. While infrastructure development has quickly become a strategic imperative to support innovation, global competitiveness, and overall economic growth, benefits to the local communities where data centers are built are often perceived as more limited.

Consider some key issues:

Water and Energy Use

The problem: Large facilities can consume as much as five million gallons of water a day, equivalent to the residential demand of approximately 50,000 people. This burden can be highly problematic in water-stressed areas like Arizona, Texas, or the Colorado River Basin, which have seen significant development since 2022.

Likewise, a large-scale data center can use as much power as 100,000 homes. As data centers drive up overall energy demand, utilities may pass the costs of necessary infrastructure and grid updates to local residents.

The response: Communities are seeking greater oversight via monitoring, drought-water contingency planning, and site-specific risk assessments. For their part, some data centers have invested in cooling approaches that cut back on water demand, while others leverage reclaimed wastewater from utilities instead of using local supplies.

On the policy side, states and utilities are looking to shift energy costs to data centers via “bring your own generation” or backstop procurement models. For instance, AEP Ohio introduced a rate schedule for data centers that requires them to pay for at least 85 percent of the energy they subscribe for, regardless of how much they use. (To learn more about these emerging models, see Christopher Goncalves and Hans Leonard’s ThinkSet article from this issue.)

Noise and Air Pollution

The problem: Most data centers require near 100 percent uptime, making it difficult for them to depend on renewable energy sources without compromising reliability. The possibility of next-generation nuclear power (i.e., small modular reactors) is largely theoretical at this stage. In some instances, data center construction may delay the retirement of fossil fuel–based plants or lead to development of new facilities.

Large-scale data centers also typically require backup generators that run on diesel. Emissions associated with this energy use can impact local air quality and potentially community health.

Noise pollution is an ongoing issue, with residents near data centers reporting headaches, disruptions in sleep, and an overall lower quality of life.

The response: Pushback and litigation are mounting. For example, local Memphis residents and the NAACP filed a notice with the intent to sue (under the Clean Air Act) regarding xAI’s installation of natural gas turbine installations for its new data center. Noise pollution concerns have reached Congress. Some data center developers and local governments are starting to use natural acoustic barriers and emerging technologies to dampen decibel levels.

Economic Impacts

The problem: On the one hand, data center development promises substantial economic growth and new jobs that together could compensate for some of the negative environmental impacts. A 2024 report found that the State of Virginia had generated more than $30 billion in supported economic output from data center construction and operations in 2023. Others tout the surge in demand for construction workers and electricians to build these projects.

Critics, however, highlight that construction jobs are temporary and that, once built, data centers require few permanent employees. Meanwhile, some argue that incentives designed to spur data center development, including state tax break laws, primarily benefit large corporations. Consequently, local residents may miss out on forgone tax revenue despite bearing the burden of potential environmental externalities.

The response: States such as Illinois are putting a freeze on data center tax incentives, while others like New York are considering moratoriums on new developments. At the local level, communities are removing data centers from redevelopment plans and rejecting new buildouts.

Data Center Environmental Litigation Risks

Given the potential asymmetry in the distribution of benefits and costs, lawsuits aimed at data center developments are on the rise.

A growing body of cases takes aim at the adequacy of environmental impact assessments, creating significant risks for project sponsors. For example, in Center for Biological Diversity v. City of Pittsburg, plaintiffs alleged that the environmental impact report for a major development—including a data center and warehouses—did not adequately address key environmental impacts or alternatives. Last December, the two parties agreed to a settlement that commits developers to use only renewable energy to power the data center and recycled water to cool its servers.

Similarly, the Minnesota Center for Environmental Advocacy has filed lawsuits against local governments alleging that environmental review processes for large data center proposals were legally insufficient, lacked transparency, and failed to meaningfully consider impacts on resources such as water and energy demand.

Litigation can derail project timelines and force redesigns or other measures to mitigate local impacts, often at significant cost. Beyond statutory review challenges, nuisance-based litigation risk is expanding as courts in other contexts have validated claims that changes in environmental quality associated with infrastructure development have harmed private property or public resources.

Tradeoffs in Data Center Siting and Design Considerations

As data centers become ever more central to the modern economy, tensions around their footprints will only intensify. For developers and policymakers alike, these tensions mean site selection and facility design cannot hinge solely on cost and connectivity; they also must account for local impacts and community acceptance to reduce political, legal, and reputational risks.

Importantly, different communities will have different responses to proposed data center development given unique resource constraints and preferences. For instance, employment opportunities may outweigh environmental externalities for most residents in some locations.

Economic analytical tools can help explore these tradeoffs. Empirical analysis of market responses to data center construction can give insight into community characteristics that are more likely to be associated with acceptance or opposition. Survey-based analysis can be used to explore residents’ perspectives on proposed developments and their associated tradeoffs. Valuation techniques can reflect these considerations in monetary terms to integrate them better into planning and measure risk more fully.

Rather than halt the expansion of data centers, the goal should be to ensure their benefits are broadly shared by internalizing local externalities through thoughtful regulation, meaningful mitigation, and fair compensation, where appropriate.