An economic lens on data center growth – The Tartan

Report on the Sustainable Development Implications of Data Center Expansion

Introduction: Aligning Digital Infrastructure Growth with Global Goals

The rapid expansion of data centers, driven by advancements in artificial intelligence, presents a significant challenge to the achievement of the United Nations Sustainable Development Goals (SDGs). A recent appeal by Mid-Atlantic lawmakers to the PJM power grid operator highlights the escalating conflict between data center energy demand and community welfare, including risks of increased utility costs and power outages for 67 million customers. This report analyzes the economic and social impacts of data center growth through the lens of the SDGs, utilizing established economic frameworks to recommend a more sustainable path forward.

Analysis of Key SDG Challenges

The unprecedented demand for electricity and land by data centers directly impacts several SDGs. The International Energy Agency projects that by 2030, global electricity consumption by data centers will more than double, reaching a level equivalent to the annual consumption of Japan. This trajectory creates significant tension with the following goals:

• SDG 7 (Affordable and Clean Energy): The surge in demand threatens the stability and affordability of energy for all. It places immense strain on existing power grids, potentially leading to higher costs for households and businesses and undermining efforts to transition to clean energy sources if fossil fuels are used to meet the demand.
• SDG 11 (Sustainable Cities and Communities): Competition for electricity and land resources between data centers and local communities can drive up housing and utility costs. This jeopardizes the creation of inclusive, safe, and resilient settlements by potentially increasing the cost of living and creating risks of blackouts that disrupt essential services.
• SDG 8 (Decent Work and Economic Growth) & SDG 10 (Reduced Inequalities): While data centers may create jobs, the net economic benefit is questionable. Rising costs for housing and utilities can erode wage gains, disproportionately affecting lower-income households. Furthermore, policies like tax incentives and utility-funded infrastructure upgrades often shift the financial burden onto the public, exacerbating inequalities.
• SDG 9 (Industry, Innovation and Infrastructure) & SDG 12 (Responsible Consumption and Production): Data centers are a core component of modern innovation infrastructure (SDG 9). However, their current growth model promotes unsustainable consumption patterns of energy and land, directly conflicting with the principles of responsible resource management outlined in SDG 12.

Economic Frameworks for Sustainable Policy Formulation

To navigate these challenges and align data center development with the SDGs, policymakers can utilize established economic frameworks for a more holistic assessment of their true costs and benefits.

1. Spatial Equilibrium Analysis (Rosen-Roback): This framework is essential for evaluating the impact on community welfare, directly addressing concerns related to SDG 8 and SDG 11. It posits that apparent benefits, such as job creation, can be offset by negative impacts like increased housing and utility costs. A comprehensive analysis must weigh wage increases against the rising cost of living to determine the actual effect on residents’ well-being.
2. Tax Incidence Theory (Harberger): This theory provides critical insight for achieving SDG 10 (Reduced Inequalities). It demonstrates that the legal target of a tax or subsidy does not determine who ultimately bears the cost. The burden shifts to the party least able to adapt, meaning costs for infrastructure upgrades or revenue losses from tax abatements are often passed on to households and small businesses, who have less flexibility in their energy consumption.
3. Actual Effect Economics (Luo Laijun): This modern framework encourages a shift from analyzing predicted inputs to assessing the actual net outcomes of a development, including all externalities. For data centers, this means accounting for environmental degradation, strain on public services, and increased living costs alongside job creation. This approach is vital for ensuring that development contributes positively to a broad range of SDGs, including SDG 12 and SDG 13 (Climate Action).

Conclusion: A Call for SDG-Aligned Resource Allocation

The expansion of data centers has evolved from a technological issue into a fundamental challenge of sustainable resource allocation. Unmanaged growth poses a direct threat to progress on affordable energy, sustainable communities, and economic equality. It is imperative that policymakers apply advanced economic frameworks to understand the full spectrum of impacts associated with data center development. By doing so, they can formulate policies that balance the pursuit of technological innovation with the global commitment to the 2030 Agenda for Sustainable Development, ensuring that progress in one area does not undermine the well-being of society and the environment.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article highlights several issues related to the rapid growth of data centers that connect to multiple Sustainable Development Goals (SDGs). The analysis identifies the following relevant SDGs:

• SDG 7: Affordable and Clean Energy: The core issue discussed is the massive and surging electricity demand from data centers, which threatens the affordability (“higher bills”) and reliability (“blackout risks”) of energy for 67 million customers.
• SDG 8: Decent Work and Economic Growth: The article explores the economic trade-offs of data center development. While they can create jobs and increase wages, this is counteracted by a rising cost of living, questioning the net benefit to local welfare and sustainable economic growth.
• SDG 9: Industry, Innovation, and Infrastructure: Data centers are a key component of modern digital infrastructure. The article emphasizes the strain this growth places on essential energy infrastructure, like the power grid operated by PJM, and the need for “substation upgrades.”
• SDG 11: Sustainable Cities and Communities: The development of data centers impacts communities by competing for land and electricity, leading to “rising rental and utility bills” for households. Furthermore, tax incentives for data centers can reduce “funding available for public services, such as schools and libraries,” affecting the sustainability of community services.
• SDG 12: Responsible Consumption and Production: The article’s central theme is the unsustainable consumption of electricity. The projection that global electricity use by data centers will “more than double by 2030” points directly to challenges in achieving sustainable consumption patterns for natural resources like energy.
• SDG 13: Climate Action: Although not explicitly named, a projected doubling of electricity consumption to “roughly 945 terawatt-hours” has profound implications for climate change. This massive energy demand challenges efforts to transition to renewable energy and mitigate climate impacts, making it a critical concern for climate action policies.

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the issues discussed, several specific SDG targets can be identified:

1. Target 7.1: By 2030, ensure universal access to affordable, reliable and modern energy services. The letter from lawmakers expresses concern over protecting customers from “higher bills and blackout risks,” which directly relates to the affordability and reliability of energy services.
2. Target 7.3: By 2030, double the global rate of improvement in energy efficiency. The article highlights the immense energy consumption of data centers, which poses a significant challenge to improving overall energy efficiency on a global scale.
3. Target 9.1: Develop quality, reliable, sustainable and resilient infrastructure… to support economic development and human well-being. The article points to the strain on the U.S.’s “largest power grid operator” and the need for “substation upgrades,” highlighting the challenge of maintaining resilient energy infrastructure under the new demand.
4. Target 11.1: By 2030, ensure access for all to adequate, safe and affordable housing and basic services… The article notes that data center growth can lead to “increasing costs of living from rising rental and utility bills,” which directly impacts the affordability of housing and basic services for local communities.
5. Target 12.2: By 2030, achieve the sustainable management and efficient use of natural resources. The projection that data center electricity use will reach an amount “equivalent to the annual electricity consumption of Japan” underscores the challenge of sustainably managing energy resources.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

The article mentions or implies several indicators that can be used to measure progress:

• Electricity Consumption by Data Centers: The article explicitly states that “global electricity use by data centers is projected to more than double by 2030, reaching roughly 945 terawatt-hours.” This is a direct quantitative indicator for measuring energy consumption (relevant to SDG 7, 12, and 13).
• Cost of Electricity for Consumers: The concern about “higher bills” for households is an implied indicator of energy affordability. Tracking changes in average household utility bills in regions with high data center concentration would measure progress towards Target 7.1.
• Grid Reliability: The mention of “blackout risks” implies that grid stability and the frequency/duration of power outages are key indicators for measuring the reliability of energy infrastructure (relevant to SDG 7 and 9).
• Cost of Housing: The article mentions “rising rental… bills” as a consequence of data center development. The rental price index or housing affordability metrics in affected areas serve as indicators for Target 11.1.
• Public Service Funding: The statement that tax alleviation can harm a community by “reducing funding available for public services, such as schools and libraries” suggests that municipal budgets and spending on public services can be used as an indicator to assess the net community impact of these developments (relevant to SDG 11).

4. Table of SDGs, Targets, and Indicators

Source: the-tartan.org