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1st Friday Focus on the Environment: The pros and cons of a proposed tax incentive package to lure large-scale data centers to Michigan

Michigan Climate Action Network executive director Dr. Denise Keele
THE LUXURY COLLECTION
Michigan Climate Action Network executive director Dr. Denise Keele

ABOUT DR. DENISE KEELE:

Having been a farmer, a forester, a grassroots organizer, a political scientist, and a professor, Denise Keele comes to her role as Executive Director of Michigan Climate Action Network with a holistic understanding of the need to reverse global warming rapidly. Denise received her doctorate in Environmental Politics from Syracuse University and was an Associate Professor of Political Science at Western Michigan University (WMU) in Kalamazoo, Michigan. Her research and teaching focused on environmental policy and law—particularly, the use of the courts and interest groups to influence public policy.

At WMU, Denise chaired the interdisciplinary Climate Change Working Group from 2014-2022, bringing over one hundred faculty, students, and staff together to create and implement several academic and outreach programs, including a minor in climate change studies. She served on the Kalamazoo Township Climate Committee and the City of Kalamazoo Sustainability Committee, and as a Board of Trustee with the Kalamazoo Nature Center, led the development of a climate action plan with a carbon neutrality goal of 2035. From 2019-2022, she founded and led the grassroots Kalamazoo Climate Crisis Coalition, coordinating more than 2000 members and 40 affiliate organizations to take collective action and address climate change.

For Denise, a leading priority is inspiring, educating, and connecting people—and, in particular, taking stock of how policy matches up with lived experience. Before her time with MiCAN as director, Keele was honored with its inaugural Climate Champion award in 2021.

ABOUT LISA WOZNIAK:

Lisa Wozniak
Michigan League of Conservation Voters
/
michiganlcv.org
Michigan League of Conservation Voters executive director Lisa Wozniak

Lisa’s career spans over two decades of environmental and conservation advocacy in the political arena. She is a nationally- recognized expert in non-profit growth and management and a leader in Great Lakes protections. Lisa is a three-time graduate from the University of Michigan, with a bachelor's degree and two ensuing master's degrees in social work and Education.

Lisa serves a co-host and content partner in 89.1 WEMU's '1st Friday Focus on the Environment.'

RESOURCES:

Michigan League of Conservation Voters

Michigan Climate Action Network

Dr. Denise Keele

Michigan Senate Bill 237 of 2023

TRANSCRIPTION:

David Fair: Michigan lawmakers are advancing legislation that would expand tax incentives aimed at attracting large data centers and their jobs to the state. But some contend that's a threat to the state's sustainability goals. This is 89 one WEMU's First Friday Focus on the Environment, and I'm David Fair. And today, we're going to get a better understanding of what's being proposed and its potential impacts. My co-host is here. Lisa Wozniak is executive director of the Michigan League of Conservation Voters. And, Lisa, this is a more complex issue than it may appear on the surface.

Lisa Wozniak: Exactly right, Dave. It is a very complex issue. And that's why I've invited Denise Keele to join us today. Denise is director of the Michigan Climate Action Network, and she can give us a much more well-rounded understanding of what's being considered and the implications for Michigan's water and our energy supply. So, Denise, thank you so much for making time today!

Dr. Denise Keele: Great to be here with you both!

David Fair: Now, it's not news to you that we do have existing co-located data centers in Michigan. They've been here for years, but now there's this big push for enterprise-scale data centers that's intended to fuel the anticipated massive AI, cloud and crypto growth. The legislation under consideration is meant to attract those sprawling data centers, where developers invest a minimum of $250 million. Now, each would have to create a minimum of 30 jobs, with wages at or above 150% of the regional median wage. And proponents of the legislation say most of the centers would create about 300 jobs annually in total, where the incentive to developers comes in would extend a 2015 sales and use tax exemption for qualified centers from 2035 to 2050 or longer if it's located on a brownfield or former power plant site. That is full generation of more tax breaks impacting the community where the center is located and the state as a whole. Using tax breaks and financial incentives--certainly a part of the state's methodology in attracting new business. But in your estimation, analyzing all of that from a purely business and tax perspective, does the math work out for you?

Dr. Denise Keele: Well, I think the short answer to that in my former career as a political science professor, we often say follow the science when we talk about climate, and we also mean the social science. And it's actually pretty clear. Numerous studies have shown that these types of tax incentives often fail to live up to expectations for inducing the job creation and growth that we believe that they will. These kinds of investments and tax breaks have really tripled since the 1990s and have become this primary place-based policy in the US. But they're very, very costly to our state. One estimate right now is these bills could cost Michigan upwards of $42.5 million in unrealized tax revenue through 2062, depending on how they use the exemption. And when we're talking about that money, we do have to think about its offset. You know, when we look at things like the Michigan Growth Report, that says we need to be investing in education. They're $4.5 billion underfunded. And so, we have to consider the tradeoffs here of tax incentive policy that, again, the social science research would tell us doesn't really work to create the types of jobs and local economy environment that we think they do. And then, we have to think about this offset of our overall budget and our priorities as a state of what we really need those dollars to do to attract new folks to Michigan, to retain the folks in Michigan that want to stay here and keep those good jobs.

Lisa Wozniak: So, Denise, I think it's important to have a real understanding of what one of these mega enterprise data centers looks like and the resources it requires. Can you paint a word picture for us of what the inside of a data center looks like and the amount of water and electricity required to operate one of them?

Dr. Denise Keele: Sure. There's so many impacts with these pieces. Of course, everything we do has some environmental impact, but we have to take a step back and look at the overall piece that we're doing with our own legislation. Of course, we've seen the emergence of these giant data centers. Many of them are the size of multiple football fields, and they have literally double the amount of energy use in the United States overall. Even the ones that are operating right now is the co-located one. These facilities, energy-wise, demand up to 50 times more than a typical office building and has labeled them as one of the most energy intensive building types. There's, right now, not enough renewable energy in the US to power all of these data centers that exist now, or even the ones that are approved for construction. And the International Energy Agency just said these data centers are going to make up more than a third of additional US electricity demand over the next few years. So, the energy piece is really a huge draw. Of course, all that is related to AI, as Dave mentioned early on. It's some of that growth. And the water piece is even tougher to figure out. But there's really an issue with transparency around these data centers. Lawrence Berkeley National Laboratory has been trying to study this and has been able to drill down on the energy use numbers, but the transparency in water use is terrible from these data centers. And their heavy reliance on water is estimated up to draw up to 5 million gallons of water daily, because most of them use the evaporative cooling system. And we can compare that in Michigan, of course, to Nestle's bottled water facility that many listeners will be familiar with. That ignited a huge controversy when it proposed pulling 576,000 gallons. Now, let's compare that to 5 million gallons a day. Of course, there are different technologies and things to consider here that we could be more efficient, but most of these are using the city's water supply to do that. And we know, with climate change, we're experiencing record-breaking drought. So, there's a really significant cause for alarm here from the water and energy use side.

David Fair: This is 89 one WEMU's First Friday Focus on the Environment. And today, we're talking about the prospect of Michigan becoming a hotbed for data centers and why that has environmental advocates concerned. Our guest is Denise Keele. She is director of the Michigan Climate Action Network. And, of course, my co-host is Lisa Wozniak from the Michigan League of Conservation Voters. So, you've touched on it, but what are the potential implications to the residents of Michigan when it comes to access to and the cost of safe drinking water if we're going to commit that much to data centers?

Dr. Denise Keele: That's right. And so, we've seen a few of these examples around the impacts around the country of what happens to that drinking water supply and these facilities requiring so, so much of this piece--West Virginia, Michigan--that's one reason, actually, why these data centers want to come to areas like Michigan because of the water needs and the water uses, right? And so, these are using our municipal drinking water supplies. And we've seen this come up against the public supply in West Virginia and Georgia and, of course, Arizona and California, where these other facilities are located. The energy piece is also concerning because of, of course, our goals and the package of climate and energy legislation that passed the Michigan legislation last fall. Now, those November climate bills included an off-ramp that would keep gas or coal plants running if the renewable sources couldn't handle the energy grid's load. And we have that off-ramp in the first place because we know we're going to be increasing our electricity use. And now, the electric utilities have nearly doubled their forecasts for how much power they'll need in the next four years. And that's, of course, for many reasons. We want to electrify everything. But having these data centers on to that demand will really make a difference in us being able to meet our new clean energy goals of 2040. So, the other big thing that I would strengthen and highlight to the public is we really have to have some safeguards around rate paying. The other thing that happens is how is that electricity used, of course, if the data center is buying that and paying that costs different than a traditional or residential home payer. Anytime we do tax policy, we have to remember it's about trade-offs, and we give these special tax breaks to some payers. But often, it leaves other tax payers left to pick up the tab. We're going to also really have to consider how we protect citizen ratepayers in that increase in demand. And some folks are willing to pay for that, when others just simply will not be able to keep up.

Lisa Wozniak: So, one other thing I wanted to ask about is we haven't spoken specifically about the grid, and the grid is something that we know that we've had to think about massive upgrades too based on the changing factors in our energy systems. Talk to us a little bit about what the pressures on the grid will be from these centers. And is there conversation right now about really doubling down in investments on the grid to make sure we can accommodate these centers?

Dr. Denise Keele: Sure. That's absolutely a huge critical piece to meeting our overall energy goals. Again, we know right now that there was an off-ramp in the climate bills last fall in order to allow for the case that, hey, electricity demand is increasing anyway. And now, we're adding this huge piece on to it, and we have to look at maintaining and updating a much more reliable grid in order to handle all of those pieces. We know we're bringing on electrifying everything, from our electric vehicles that will need to be charged to all of our home needs. And so, there's really this huge piece that has to be implemented in upgrading our grid. And there's lots of other ways to do that as well. Also currently under consideration are bills around community solar that would expand residential access to rooftop solar to be able to share that load and to be able to increase the capacity of our overall grid. There's a lot of great proposals and pieces out there for our grid to be expanded and increased in its capacity to manage our growing needs.

David Fair: Once again, we're talking with Denise Keele from the Michigan Climate Action Network on WEMU's First Friday Focus on the Environment.

Lisa Wozniak: So, Denise, if Michigan wanted to be a home for some of these megacenters, what would need to happen legislatively to ensure that we were meeting our climate goals based on the passage of the legislation last year and that we were protecting our water, whether that was in municipal water, assuming they were using municipal water systems or our groundwater, if they were located in large, open green space locations? What needs to happen legislatively to make sure that we're addressing these?

Dr. Denise Keele: Sure. So, we could absolutely have an opportunity here to leverage this data center development and elevate and implement Michigan's clean energy goals by aligning those policies. We can and should absolutely have the data centers be driving their own renewable energy buildout to source their needs. In fact, it's really, really interesting when you look at the demand that these data centers put on electricity and then compare that to how renewables perform. We all know that renewables have incredible peaks right now of the creation of energy that we're not able to yet capture. And being able to build, actually, these facilities in tandem with their own renewable energy sites could be a huge win-win because those companies--those data centers--are going to be able to use all that off-peak power and maintain that load much more consistently. So, we absolutely should be requiring, along with jobs and other qualifying pieces, we can absolutely require to build out that renewable energy to have the best technology for the water pieces and to ensure that those ratepayers for both water and electricity are not going to be harmed by the demand from the data center.

David Fair: The legislation under consideration in Lansing right now--you've just laid out how it can be beneficial. Does the legislation, as written, take all of that into consideration?

Dr. Denise Keele: Well, we know that those pieces have been passed by the Senate and are back in the House. We don't know that yet, but that's what we are all asking for. If we're going to give these tax incentives, which, again, we don't think that there is that kind of benefit. Of course, there could be a local jobs benefit, and we should take that very, very seriously. But we need to investigate that, and we need to be making sure that we can put in these kinds of protections around the energy and water use if we are to allow this incentive to occur.

David Fair: Based on your current understanding of where the legislation is and how it is progressing, is this tax incentive package going to pass through the state Legislature, be signed into law by Governor Whitmer, and become a part of our future?

Dr. Denise Keele: Oh, gosh! Asking me to predict the political future is always dangerous if they are passed. I think it's been a very good sign that we have had allies in the Legislature see the water and energy impacts of these bills, and they are fighting very, very hard to put the kinds of guardrails on there for our ratepayers and for our environment in order to meet the goals. Those are the kind of bills that we will support when the time comes.

David Fair: Well, I'd like to thank you so much for the time today and for sharing your insights, Denise. We most appreciate it!

Dr. Denise Keele: Well, thank you so much for having me! It was a real pleasure!

David Fair: That is Denise Keele. She serves as director of the Michigan Climate Action Network. My First Friday Focus on the Environment partner, of course, is Lisa Wozniak. She serves as executive director of the Michigan League of Conservation Voters. And we'll see you again in August, where, I assume, it will be even warmer!

Lisa Wozniak: I look forward to it, David, as always!

David Fair: I'm David Fair, and this is your community NPR station, 89 one WEMU FM, Ypsilanti.

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Contact David: dfair@emich.edu
Lisa Wozniak is Executive Director of the Michigan League of Conservation Voters.
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