As the world races toward an increasingly digital future, the explosive growth of data centers—and the energy they require—has become a flashpoint for debate and concern. In the United States, tech giants like Google, Microsoft, and Amazon have sounded the alarm over proposed changes to federal renewable energy subsidies, warning that these shifts could threaten not only their operations but also the nation’s ability to compete with China in the technology sector. Meanwhile, across the Pacific, Asia’s data center boom is raising fresh questions about the sustainability of the region’s water and energy resources, as governments, businesses, and communities grapple with the twin challenges of powering and cooling these digital behemoths.
On August 4, 2025, a coalition of leading data center operators—including Google, Microsoft, and Amazon—sent a letter to US Treasury Secretary Scott Bessent, urging him to maintain current wind and solar energy subsidy guidelines. According to Cryptopolitan Research, the companies argued that these subsidies have been crucial for their growth and have allowed them to remain competitive against China’s rapidly expanding tech sector. Their plea comes in response to a wave of stricter regulations proposed by the Trump administration, which would tighten eligibility for AI projects to receive federal renewable energy tax credits.
The stakes could hardly be higher. Industry critics and watchdogs warn that the proposed changes could slow the development of power infrastructure, potentially limiting the electricity supply to data centers just as demand—driven by the AI boom—continues to soar. In their letter, the data center owners stressed, “Any current delays in introducing new energy supplies could greatly affect our capability to fulfill future electricity demand in the AI boom era.”
President Donald Trump, who has made no secret of his skepticism toward wind and solar energy, took decisive action last month by signing an executive order that demands stricter regulatory measures for renewable energy tax credits. These changes, which also apply to AI projects, alter the very definition of project construction. As the administration sees it, such measures are necessary to reduce what it calls an overdependence on “unreliable” and “expensive” energy sources that are closely linked to China’s supply chains. In Trump’s words, “these energy sources are unreliable, expensive, and are connected to China’s supply chains.”
On August 15, the US Treasury Department unveiled the new regulations, which require developers of large wind and solar projects to demonstrate significant physical progress—rather than just financial investment—before they can qualify for tax credits. Under the recently passed One Big Beautiful Bill Act, projects must be initiated by July 2026 or begin operation by the end of 2027 to be eligible for a 30% tax credit and additional bonuses. For utility-scale projects, the new rules demand that developers focus heavily on physical work, with the sector given four years to claim the subsidies. The final, updated regulations are due to be released by August 18, 2025.
Industry leaders are not alone in their concerns. Clean Energy Associates, a North American firm known for its data and analysis of solar and energy storage projects, has warned that the stricter regulations could lead to a loss of 60 gigawatts of solar power development by 2030. Such a setback would have significant economic consequences: according to the Data Center Coalition’s analysis, the sector contributed roughly $3.5 trillion to the US gross domestic product from 2017 to 2023 and provides about 600,000 jobs.
While the debate over subsidies and regulations heats up in Washington, a parallel story is unfolding in Asia, where the rapid expansion of data centers is creating both opportunities and new environmental challenges. At a regional workshop in Malaysia this June, governments, international organizations, industry leaders, and academics gathered to discuss the region’s energy transition and the urgent need for sustainable alternatives. There was broad consensus: Southeast Asia must find innovative solutions to meet its fast-rising data center electricity demand.
According to South China Morning Post, data center capacity in Asia is expected to nearly double over the next five years, reaching around 25,000 megawatts. The financial stakes are huge: annual co-location rent could hit $44 billion, with more than 72% of capacity concentrated in Japan, mainland China, Australia, India, and Malaysia. This surge is being driven by several factors: the rapid growth of AI workloads, the expansion of cloud adoption as more governments and businesses move online, the explosive rise of the digital economy, and increasingly strict data sovereignty laws that require sensitive information to be stored within national borders.
But the Malaysia workshop also revealed a sobering reality. Developing massive data center facilities will consume enormous amounts of electricity, and the environmental impact doesn’t end there. Cooling systems, essential to keep data centers from overheating, are extremely water-intensive. A one-megawatt facility can consume almost 26 million liters of water annually for cooling alone. Across Asia, the use of cooling water is projected to reach nearly 1 trillion liters in 2025 and 1.7 trillion liters by 2030.
Even more concerning is the source of this water. In 2024, drinking water accounted for 47.5% of data center water consumption, highlighting a heavy reliance on municipal water grids. This is particularly troubling given that more than 75% of Asia is already water insecure, and countries home to over 90% of the region’s population face imminent water shortages. The environmental footprint of Asia’s AI-driven data center boom, therefore, extends well beyond electricity—it’s a looming water crisis as well.
Despite these challenges, the opportunities presented by the data center boom remain significant. The sector is a powerful engine for investment, job creation, and technological advancement. But as the digital economy outpaces the development of supporting infrastructure, both the US and Asia face a stark choice: adapt quickly to ensure sustainable growth, or risk undermining the very progress these data centers are meant to support.
As the world waits for the US Treasury Department’s final ruling on renewable energy subsidies, and as Asia’s leaders confront the twin crises of energy and water scarcity, the future of the digital economy hangs in the balance. The decisions made in the coming weeks and years will shape not only the fate of data centers, but also the broader trajectory of global economic and environmental health.
