The Real Cost of US Data Center Growth

The rapid growth of data centers in the United States is raising concerns due to their potentially wide-ranging impacts on the energy system and on local environmental conditions. In a new National Bureau of Economic Research (NBER) working paper, “Measuring the Impact of Data Centers in the United States Economy: Monetary Damage From Air Pollution and Greenhouse Gas Emissions,” Nicholas Z. Muller assessed data centers’ electricity use and quantified the social costs from pollution emitted during electricity production to meet this load. The study identified damages likely to affect both regional electricity and public health.

Muller, Professor of Economics, Engineering, and Public Policy at Carnegie Mellon’s Tepper School of Business, says, “By focusing on damages from local air pollution and greenhouse gas emissions caused by the electricity production used to power data operations, my work contributes critical information to the analysis of the net impact of data centers in the United States.”

Data centers are electricity-intensive, and the surge in demand for power is straining regional electricity grids. As a result of the quick expansion of a sector with large loads, in some regions of the United States, utilities have had to accelerate investments in generation, transmission, and distribution infrastructure; in other instances, older generation assets that had been retired are being brought back online. At the local level, large data centers can generate tensions over land use, water consumption for cooling, and noise and air quality.

Muller used facility-level data for approximately 2,800 U.S. data centers that operated in 2025 (provided by S&P Insights), combined with electricity grid characteristics and emissions data from the U.S. Department of Energy and the U.S. Environmental Protection Agency, to estimate pollution impacts, then applied the social cost of carbon to value greenhouse gas emissions.

Data centers consumed roughly 250 terawatt-hours of electricity—about 5 percent to 6 percent of total U.S. generation—and generated approximately $25 billion in gross external damages, ranging from $10 billion to $33 billion, the study found. These damages were concentrated geographically, with Texas and Virginia accounting for 30 percent of the national total. While these damages comprised about 5 percent of the industry’s gross domestic product (GDP), this ratio varied widely across states, exceeding GDP in some regions.

Counties with the most damage from air pollution were in large cities (e.g., Houston, Dallas); cities in the Midwest (e.g., Chicago, Detroit) also had elevated levels of pollution from data center energy use. In addition, even small changes in fine particulate matter in distant, but populous metropolitan areas (e.g., Los Angeles, New York City) resulted in significant damages.

Lower-than-average commercial electricity prices in these states may play a central role in decisions about where to locate centers. Planned data center expansions could boost electricity demand and associated damages by as much as 85 percent in the near term, Muller concluded, likely affecting regional electricity grids and public health significantly.

Despite these environmental costs, preliminary comparisons suggest that the damages attributable to energy use related to artificial intelligence are small relative to the possible benefits of this technology.

The study was funded by the Center for Intelligent Business at the Tepper School of Business.

Summarized from an NBER Working Paper, “Measuring the Impact of Data Centers in the United States Economy: Monetary Damage From Air Pollution and Greenhouse Gas Emissions,” by Nicholas Z. Muller