Is ChatGPT actually draining Arizona dry?

Arizona water bills have doubled or tripled in the last year, and a lot of people are pointing fingers at AI and data centers. The viral claim that every ChatGPT prompt uses a full bottle of water has parents, teenagers, and city council members convinced that artificial intelligence is draining the desert dry. But what if the math is completely wrong?

Andy Masley is a former high school physics teacher turned independent researcher who became one of the most cited voices in the national data center conversation after his writing went viral and earned him a private grant from a $4 billion philanthropic organization. He is also the person who caught what may be the single largest factual error ever published in a major bestselling book, a mistake the New York Times covered and the author eventually corrected.

What you will learn in this episode:

• Why the "bottle of water per AI prompt" claim is off by a factor of roughly 500, based on more recent data
• How a missing unit of measurement made a Chilean data center look 1,000 times more water-intensive than it actually was
• What the median ChatGPT prompt actually costs in energy (around 3 watt hours) and how that stacks up against daily life
• Why optimizing AI chip efficiency means each individual prompt is getting cheaper over time, not more expensive
• How Arizona data centers compare to golf courses in water consumption, and which one wins on tax revenue per gallon
• Why focusing on AI water use may be a distraction from agriculture, which accounts for the vast majority of Arizona's water footprint
• What the Loudoun County, Virginia model can teach Arizona cities about negotiating with data centers before they break ground
• How local governments can and should require data centers to internalize infrastructure costs so that burden does not land on ratepayers
• Why noise pollution, not water use, is the issue residents near data centers most consistently raise
• What the recent SRP board election reveals about the tension between clean energy investment and keeping electricity bills low
• Why Andy believes industrial animal agriculture, AI governance, and renewable energy infrastructure are the three highest-leverage issues facing the world right now

Connect with Andy Masley: 

Website: AndyMasley.com

Email: AndyMasley@gmail.com 

LinkedIn: linkedin.com/in/andrew-masley

Transcript

SPEAKER_00 0:00

Welcome to Law Labs, where law firm life gets a glow-up. I'm Billy Taraschio, founder of Modern Law, and every week we crack open what it really takes to run, grow, and scale a law firm. Inside the age of AI and innovation, this is where firm owners, legal rebels, and business minds come to swap ideas, share wins, and messes, and rethink what's possible in the profession. If you're ready to lead smarter, scale faster, and build a firm that actually works for you and your client, you're in the right place. Let's get to it. Hello and welcome to the Modern Arizona podcast. If you live in Gilbert, Chandler, Scottsdale, or anywhere in the East Valley, you've probably opened a water bill in the last year and done a double tape. Maybe it doubled, maybe it tripled. And if you've been on social media, you might be wondering: is it the data centers that we all see popping up? Is it AI? Is it Chat GPT? Every time someone sends a prompt, they're using a bottle of water. We have hundreds of data centers going up all over the valley. These might be things that you have heard. And the problem is it's not true. So today's guest is the person who proved it. Andy Mazley is a former high school physics teacher from Washington, DC. He's not a data center industry lobbyist. He's not a tech company spokesperson. He's a guy who got curious, did the math, and was so effective that he has obtained a private grant from coefficient giving, formerly known as open philanthropy. And this is a $4 billion bill and therapy organization backed by Facebook co-founder. His posts on this topic have gotten have been read over 2,300 times. He has caught what may be the single largest factual error in a major best-selling book ever. And the New York Times wrote about it. So he's here to tell you that everything's fine and to tell you what's true. And I promise you it will surprise you. Andy, welcome to the show.

SPEAKER_01 1:57

Yeah, uh massively uh flattering introduction, Billy. Really appreciate it. Yeah, happy to be here.

SPEAKER_00 2:01

So, first off, how did you, a high school physics teacher, come to become become the data center water guy?

SPEAKER_01 2:09

Yeah, yeah. It's um that that's my like universal reputation now. It's funny. Yeah, so basically in January of last year, I had already been following AI for a while and was using like AI models pretty consistently. I was using like ChatGPT and stuff like that. And I'd also been following the background hardware of the models and had a pretty good idea of like roughly how much energy and water they were using based on like public expert estimates and stuff like that. And I was finding that when I went to parties, a lot of people would be like, oh, like you use ChatGPT. Don't you know that's like terrible for the environment? And you know, I had a background both in physics and explaining to people exactly how much energy different things use. Um I've also been pretty fired up about climate and the environment for over 15 years now. And I had a lot of very strong background opinions about both of those. One general school of thought that I'm coming from is the basic idea that for dealing with the climate, it's just incredibly not promising and basically completely ineffective to focus at all on extremely tiny cuts to your personal lifestyle. Like if you're trying to change um things for the better for the environment and the climate, like the name of the game is basically the green energy transition and helping out with that however you can. And if you do want to make cuts in your personal life, there are a few like really big things you can do. You can like drive less, you can reduce your meat consumption, you can fly less. But I was coming into this debate very skeptical about the idea that like cutting something as small as a computer program, even something like ChatGPT, could have a meaningful impact. And so when people at these parties would tell me that like ChatGPT uses 10 times as much energy as a Google search, I wanted to stop them and say, like, like 10 Google searches, that's what we're worried about here. Like, if I had told you that I had done like 500 Google searches today, would your first reaction be like, oh, this guy doesn't care about the environment, he's crazy? Probably not, right? And so I was coming in with a lot of skepticism. Um, I'd written a general like overview blog post on my beliefs about this. I didn't really expect it to go far. I was kind of expecting it to just share with a few friends and like basically make my case because I was finding I was having trouble making it at these like very loud parties that I was at. And it kind of blew up overnight. It turned out I was the first person to write about it from this perspective. Um within a few weeks it was being talked about in a lot of different places and convinced me that I should probably do a few more deep dives here. And so one thing led to another, um, read a lot more about the general state of how much energy and water individual AI prompts use, which led me to learn a lot more about data centers. And there I was also finding that my general takeaways, which like I'm not really producing much of my own knowledge and mostly relying on like expert opinion and like writing about this that I feel like just isn't really making it into mainstream conversations about it. There's a lot of sensational headlines that I think kind of misrepresent what's actually going on, and was basically finding that I was disagreeing with most of the way this was being covered. So I blogged and blogged a lot about it and eventually ended up becoming a pretty significant voice in the broader data center conversation. And so, yeah, had a lot of success last year. And it's very exciting to talk about. It's a really cool intersection of a lot of stuff that I personally care about.

SPEAKER_00 5:02

Well, and it matters. I've got teenagers in this house who refuse to use AI because they believe doing so is somehow morally wrong. And so they look at me as being extremely morally wrong because I really like using AI. But besides just saying it's wrong, how do you know? How do you know how much water or the environmental impact of AI?

SPEAKER_01 5:28

Yeah. Um, so there's a ton of stuff to say about this. In talking about this, I need to be careful that every single time you send a prompt, it's gonna have a different environmental impact because like the length of the prompt and whether you choose like a reasoning model or whether you're making an image or a video, like these all have different costs. But the theme of my writing is that all these costs still fall in like a very predictable range, and we can make some general claims about them. Like a lot of the conversation will be like, oh, there are all these mysterious costs that we don't know. And like we do know enough about them to say some basic things about roughly how big the median cost of an AI prompt is. And so we have a lot of different data on this from a lot of different places. We just understand the like hardware that AI runs on quite well. Labs aren't always super great about sharing information. Like that's kind of a separate problem in this conversation. I think there's actually some national legislation that might force them to share a lot more information about the energy and water that they're using. So I'm personally very excited for that because it'll make my like writing much easier, honestly, once we have a lot more information there. But we have a lot of general information about how much each individual prompt seems to use on average, um, with like big error bars depending on what you're doing. And so the median chatbot prompt, as far as I can tell right now, probably uses about three watt hours worth of energy. And in comparing this to other things that we do, I find that a lot of writing on this will often compare that to other incredibly tiny ways that we use energy. That'll be like, oh, it's like 10 Google searches or 100 Google searches. I think this is mostly not helpful at all because an incredibly tiny cost can be multiplied by 10 or 100 and still be very small. Like, for example, a digital clock probably uses something like one million times as much power as an analog watch. But I don't think it's evil to use digital clocks because they're still just so incredibly small that they round to zero in your daily emissions. And so just to put the Chat GPT number in context in context, using something that emits or uses three watt hours worth of energy on a standard American grid, you would probably have to send about, say, 150 to 200 prompts, give or take, to raise your daily emissions by 1%. And if you think about it, like sitting around sending like 200 prompts throughout the day, like that's gonna take up most of your time. And if you're spending all your time sending those and reading all the responses, it's very likely that you're not doing a lot of other things that also emit quite a bit. And almost everything that we do has a carbon cost, if that makes sense. So like if instead of like sitting around using ChatGPT, you like go for a run. Like even just running wears out your shoes a little bit, and your shoes eventually need to be replaced by like new like running shoes. And if you divide the cost of like making the shoes by the amount of time that you'll spend running in them, like their carbon cost actually has a higher cost than like sending a Chat GPT prompt every minute or so. And so, like, I'm coming from a perspective where um I and a lot of other people who have thought a lot about how to actually reduce emissions are very skeptical of these small cuts because it's very likely that you'll instead just do something else that also emits quite a bit. And even if you're only replacing it with super optimized stuff, it's very unlikely that this is ever going to add up to be like a meaningful amount of your emissions. It's kind of like pausing a microwave a few seconds early to like save the climate. You know, like if I had a friend who was doing that, I'd be like, oh, there's just so much else you could do. This just seems like this kind of needless stress that you're adding to your life. And I think a lot of people who talk about this just aren't really aware of just how many other things in our life emit and just how much they emit specifically. So yeah, a lot more to say about that though.

SPEAKER_00 8:52

Tell me about the story of Empire of AI. This is a major book, a credentialed author, a major publisher, and you kind of debunked a theory. So talk to me about how that happened.

SPEAKER_01 9:05

Yeah. So Empire of AI by Karen Howe is focused on basically like bad behavior of AI companies in different ways. And I want to be clear that I'm actually like quite worried about AI in a lot of ways that don't have to do with the environment. Like I think AI is potentially going to be very powerful. There are a lot of ways that could be dangerous in the future. But and I I think Karen Howe has done a lot of like really great reporting on, say, like um, there was a lot of like drama on the open AI board a while ago that like mattered quite a bit for AI policy, and she was pretty pivotal there. But basically, my story is I was writing a lot about AI and water. We can get into like the water stuff more specifically later because there's the whole separate thing about how like AI uses a bottle of water per prompt, which I think is pretty mistaken. But I basically established myself as having a reputation for knowing a lot about water within the US specifically, but I didn't know how AI was interacting with other countries as much. And I was having a lot of people recommend this book to me and say, like, oh, she has this whole chapter on how AI is really harmful in like poorer countries that don't have the ability to regulate these AI companies in the same way, and they're like draining their water supplies specifically. And I was pretty open to that, you know, like I don't expect these companies to always behave super well. So I'd open the book specifically just to that chapter where she talks about the environmental and water impacts of AI in other countries. And right away there were a lot of alarm bells going off in my head. Like the first time she mentioned water, there was this point where she had described AI as eventually using half as much water as the United Kingdom. And I knew the study that she was drawing from. There was this really weird way that she had misrepresented what the authors had said said there, where they had specifically reported the total amount of water that will be involved in any way at any part of the process with AI. And she was comparing this to water consumed, which is specifically water that isn't given back to the local environment. Whereas like almost all water involved with AI is used to generate energy and is eventually given back to whatever local environment it's in. Like that's a whole separate conversation. But I had flagged that and I was like, oh, that's a little bit strange. Like I think that was pretty misleading, but I'll keep going. And the big error that I had found that kind of like shot me to like fame on this was finding this one point where she had said that a single AI data center in Chile was using something like a thousand times as much water as a city of 80,000 people. And these people had to, you know, like fight tooth and nail to make sure this data center didn't pop up and drain their local water supplies. And basically reading about this, I you know, like sirens were going off in my head because I just read a lot about data centers in America, and I just knew there was no data center anywhere that was using as much water as like 80 million people. Like that's just way too much, specifically. So after looking into it a little bit, I realized that she had done, made a pretty basic mistake with the units of measurement, specifically, where she had emailed like the local government about how much water they used, and they had given her a number without units, and she'd assumed the unit was what she had asked for, which is understandable. But maybe she had like double check that because it implied this really crazy basically this error that made the data center seem a thousand times as bad as it actually was. And so, like the actual number, um, there were some other strange like things she had done where she had looked at the maximum per second water draw of the data center, um, and then assumed that it would draw that amount over the entire year. Like she multiplied that by the number of seconds in a year specifically. And most permits don't actually work like that. Like those permits are made for like absolute worst-case scenarios rather than this is how much it's actually going to draw. So my guess was that she was about like 5,000 times off the actual amount that the data center was drawing. And so it still uses like a significant amount of water, where you know it's a big part of the local community's water ecosystem, but it basically shrunk to the size of other large industries in the area, like a car factory or a pharmaceutical plant, um, also use quite a bit of water on the same orders of magnitude as data centers specifically. And all these things really pale in comparison to the main way that all countries use water, which is agriculture, actually. Like obviously agriculture is important, like we need food to eat, but there are also a lot of ways that our agriculture can be really wasteful or suboptimal with water. Like for me, my big hobby horse in America is like ethanol for you know, like growing corn for fuel. Um, there are a lot of ways that that is very wasteful with water. Animal agriculture is another that I talk about a lot. Um, but yeah, that's basically what brought me to like some mild like internet fame specifically. So I brought that up. Karen, the author, was super generous. She had like responded in detail to my post, was always very nice, and eventually actually corrected the book based on like my reading of it. So like it was very cordial interaction all around. So I was very grateful for that.

SPEAKER_00 13:32

That's wonderful. Let's talk about the viral claim that every Chat GPT prompt uses a bottle of water. I'd like to know where that came from. And I would love to hear about your pizza story.

SPEAKER_01 13:45

Oh the p yeah, yeah, definitely. Yeah. Um yeah, I love the pizza story. It's cla it's a classic. So yeah, um, basically, in 2024, the Washington Post ran this story called Writing an Email uses a whole bottle of water, like the scary rise of AI or something like that. I forgot the exact title. Reading that, um, you realize that what they're doing there is they're assuming that every email that you write requires like 10 or 20 chatbot prompts. And so it's not actually a bottle of water per prompt. It's a bottle of water per email. And email is supposed to take like 20 prompts or something, which, you know, I'm an AI power user, but I don't really take 20 prompts to write 100 words personally. Like I don't know about you, but that's a little bit much. And it was making some other strange assumptions. So it was working off of, from what I can tell, this data from this water researcher who is pretty good, but his research was something like five years old at that point. And it was assuming that the AI hardware that these chatbots run on hadn't been optimized at all since then. And in reality, it seems like chatbot hardware has been optimized quite a bit. Like every five years or so, um, the average prompt only costs about 1% the energy that it did five years previously. It's just radically dropping off because there's just so much money and interest in reducing AI companies and like energy bills as much as possible, basically, because they spend a lot on that.

SPEAKER_00 15:01

That makes perfect sense. It's like I've been talking about, I'm sure people will come up with a better way to do whatever, become more efficient. There's too much money incentive not to become more efficient. Why is nobody talking about that?

SPEAKER_01 15:16

Yeah, it's it's very it's I think a lot of people just struggle a lot with this because they'll see these correct statistics that AI is going to use more and more energy over over time in total. And I think what they're missing there is that what that means, what that's actually talking about, is that we're getting radically new models that do radically different things. And those come with a new energy cost, definitely. Like coding agents and things like that use way more energy than like simple text prompts. But the main reason AI is growing so much is just that it's being used so much more, not that each individual prompt is getting more expensive over time. Like a lot of the smartest, most educated people in the world have all this huge financial incentive to go and work on optimizing these already incredibly optimized AI chips specifically. And what I think a lot of people miss in the water conversation is they look at this data center, they don't really know what's going on inside, and they'll just see it consuming huge amounts of water and assume that whatever's happening in there must be very wasteful because like altogether it's using a lot of water. And what's actually happening is that the data center is moving the water in the vicinity of these computer chips that have been heated up by being used a lot, specifically. And so the water just absorbs some of the heat, it flows to these cooling towers, and it slowly evaporates to reduce some of the heat, and then it circulates again. And like, if you think about it, just like flowing water near the vicinity of hot computers is definitely like a way to use water, but I don't really expect it to be a really gigantic part of our total water cost as a country, because other ways we use water are like dumping huge amounts of it into the ground to grow food and stuff like that, or like using it in all kinds of like manufacturing processes and things like that. So anyway, if you'd like, I could just circle back around and explain like the actual picture with like individual prompts and like why it's not a full bottle of water, if that would be useful.

SPEAKER_00 16:57

Yes, I would like to understand that. Thank you.

SPEAKER_01 16:59

Yeah, great, definitely. Other um the other weird thing about that chatbot study that the Washington Post was citing was that it was also including the off-site water that was used to generate the electricity that a chatbot prompt uses. And if you look into it, a big part of their water cost was lakes dammed by um hydroelectric power plants and looking at the amount of water that evaporates off that lake, like that evaporated water is actually a big part of the quote unquote like bottle of water that a chatbot uses specifically. And I personally think it's really good that we use hydropower plants, and I'd much rather we use those than like fossil fuel plants specifically. And so this statistic implies that like using a chatbot prompt in Washington state is really bad because it has a really high water cost. And like what it ignores is that this is all renewable energy in an area where water is already plentiful. So, anyway, like all of this went into this really massive, exaggerated misunderstanding of how much water an AI prompt uses. The actual cost, if you look at more recent studies from either the labs themselves or third-party estimates, is it's usually around one milliliter of water, which is about one five hundredth of a bottle of water specifically. And that can either shrink or go grow depending on the size of the model. But AI prompts never really rise to be a significant part of your water footprint because there's just so much that you do in your everyday life, and all of us do in our everyday lives, that use water. Like, even just generating electricity uses a huge amount of water. Where, like, if you have a digital clock on your bedside table, generating the electricity for that digital clock probably uses something around like a gallon of water per month or something, it like consumes a full gallon. And I think for most people that's very it's invisible, right? Because like the only water that we see in our daily lives are like the water that we drink or the like water in our showers and stuff like that, or maybe our lawns, or if you're in Arizona, yeah, maybe you like have like an irrigated lawn or something like that. I I don't think most people know that something like 90% of their total water footprint happens outside of their home, especially in like the food that we eat. So, like going on to the pizza story specifically, like I've been vegan for 10 years, partly to reduce my own water footprint by quite a bit, because like something like half of the food that we grow in America eventually goes to feed animals that we then eat. So there's a huge amount of extra water cost there. And I remember um a few months ago, uh, I had a friend who was in like a pizza place specifically, and he overheard these two teenagers talking. And one of them was like, our mutual friend claims to be an environmentalist, but it's crazy that she says that because she still uses Chat GPT, and the other person was like, Oh, I know, it's so crazy. And then the very next thing that they did was they went over and they ordered a meat lover's pizza specifically. And I'm not saying that that was like the worst thing to do. I'm not saying that they're not environmentalists right now, but I do think that's a really clear sign that they're just missing where like the really big water baddies are in society. And if like you're mad about Chat GPT, like every time you eat meat, that's something like tens of thousands of prompts worth of water that you're consuming that you didn't have to if you eat it, like if you ate like a plant-based um option instead. And again, like we all have to make trade-offs in the way that we want, but like being hyper litigious about these incredibly tiny individual water costs, I think is just kind of like a sad distraction from where the real baddies are.

SPEAKER_00 20:04

So, why is this misinformation so prevalent? Who is it that stands to gain from this obvious propaganda?

SPEAKER_01 20:13

Yeah. Um, I'm a little bit skeptical that it's motivated by like anyone specifically gaining anything. I think that a lot of people are kind of a little bit hungry for the sense that like their personal consumption choices have a lot of power. And the idea that like you can identify this bad guy in your life and purge it and be like, anyone else using this, we have to stop that. And it makes you feel really good and it makes you feel like you're on a team with other people. And that's one aspect of it. Um, I think that on another weird aspect of this is that you know, data centers are popping up all over, like they're popping up in Arizona and other places. And I think it's totally understandable that people look at these really strange new buildings that are popping up and think, man, like this is this weird new thing that's using a huge amount of electricity and water compared to a lot of other things in my area. Whatever's happening in there must be really inefficient and wasteful. And I think what they're missing there is that data centers are actually just ridiculously hyper-optimized, and every individual thing that happens inside uses shockingly little energy and water by the standards of like computing. Like if you ran an AI prompt on your computer, um, it would be way less efficient and use way more energy to complete, basically. But data centers are weird because they just pile so many of these individually very tiny things into one specific building that in total it looks really gigantic and it is really gigantic, but it's not because the individual things happening inside are especially wasteful. In fact, they're like really hyper-optimized to not be wasteful. So I think a lot of people are getting this misconception from the size of the data centers. And then I guess the very last one is that like more as more and more people freak out about this, people writing about this in the media notice that, like, oh, this gets eyeballs, you know, like the media's in kind of bad straits right now. And like anything that can get a lot of eyeballs on what they write and read, like that's a big deal. And so people will write more kind of Like doom and gloom stories about like the most extreme stories of data centers, which I think are mostly but not always overblown. Like there are definitely a few places where data centers have caused some harm. And then there's this kind of like vicious cycle of like it hypes more people up. They want to read more. Some more stuff gets published, it hypes people up, and it just continues. So these are some of my like personal theories. Um I don't really know about that. Like there's a lot of could be happening here.

SPEAKER_00 22:21

I'm in Gilbert, Arizona. And the reason that we are talking about this is because the water in Gilbert, Arizona has gone crazy. Water bills have doubled and tripled in the last year or two here in Gilbert. And one of the things you've done is looked at the difference between the data center water usage and golf course water usage. I'd like to understand if you think there's any relationship between our water bills skyrocketing and data centers first. Let's just do that.

SPEAKER_01 22:53

Yeah. So I mean, like, I'm definitely not an expert on like Arizona water policy. So I don't want to dive in here and be like, oh, this is exactly what's happening. I am very skeptical that data centers are playing a significant part of Arizona's water bill rise to the point that I'm not sure they're contributing at all, really. And I can go into the reasons why. The first one is just if you actually look at how much of Arizona's water data centers specifically are actually using, including new data centers. We're I'm making some assumptions here. Like if we just assume that water prices are only determined by how much water is being used, which isn't actually correct. There are all these other factors that go into play. But just starting with that, from what I can tell, like data centers, even all the new ones together, seem to use only like 0.1% of Arizona's water altogether, just like the vast majority is going to irrigated agriculture, including like alfalfa farming, which mostly goes to feed animals. And from what I can tell, Arizona currently spends about 30 times as much water on golf courses as it does on like data centers specifically. However, like data centers are bringing in way more tax revenue in total than golf courses are because you know they're basically these like building-sized computers that are associated with one of the most lucrative new industries ever. And like if you just kind of passively let that run in your town, it does generate a lot of tax revenue per unit of water used. Oh sorry, go ahead. Basically, they're just very lucrative, and they are like this is basically entirely a decision of like local, city, and state governments specifically. So each individual state will have very different rules around this. I think a lot of states both understand that like data centers do draw a lot of like water and power, and so they threaten to be somewhat unpopular, but they're also just generating such massive amounts of revenue, and like AI companies are just really hungry for a lot more data centers that they realize we can get a lot of like mutually beneficial deals out of this, and so we'll set taxes that way. This doesn't happen everywhere because a lot of municipalities are starting to compete with each other for data centers, and so there are definitely places where tax revenue is way lower than it could otherwise be because they're trying to draw more data centers to be built there. So I have to admit, I don't really know the tax situation with like new Arizona data centers. And so my ask for your audience isn't to assume like everything is totally fine, but my ask is basically to like look into this for yourself. And instead of thinking about data centers as like, oh, there's this new weird use of water that we should never ever consider. I'd basically like people to consider like, how does this compare to other things? If the data center were already built, would this be the first thing we would want to shut down for the sake of water conservation? And like usually when I look at that, it's very hard to understand why people would want to target data centers first because they're just generating so much local revenue, so much revenue, especially per unit of water used, that they actually seem like quite water efficient if that's your goal as a policymaker to bring in a lot of tax revenue for your area. Yeah, I tend to say about this. I was gonna add that the the main way that data centers at least threaten to raise water bills is requiring a lot of new infrastructure to be built for delivering the water. So it's not actually really about like the net amount of water used. It's usually more like passing on the costs of like building all this all this new pipe system and stuff like that and like wastewater treatment, like passing that on to consumers. And that's usually a problem for water utilities specifically. And a lot of that can be avoided with good policy, like making sure that data centers internalize that cost is not too difficult because, again, they're kind of really desperate to be built. All these people are coming in and they really want it to be built. And so local communities do have quite a bit of control over what they can get out of them. And there's potentially a lot of ways that could be mutually beneficial.

SPEAKER_00 26:27

How do we, as citizens and taxpayers, know if our city is recouping the infrastructure investment from the data centers?

SPEAKER_01 26:36

Um, I think this is a little bit beyond me because it changes so much based on individual places. I would recommend reading a lot more. So I live um in Washington, D.C., pretty close to Loudoun County, Virginia, um, which has the far and away the largest cluster of data centers anywhere in the world. Like a huge amount of the world's data center capacity is like within a like half an hour drive of where I'm at right now. And the city government has been dealing with data centers for like 15 years and are mostly quite excited about it. And they have all these like policies and recommendations that are working for them in some ways. There are still issues with the data centers. Like more and more people are drawing attention to noise. Different, like data centers are just governed in different ways in different counties. And so I can't speak too confidently to that. But I would just recommend that people look into this a lot and not automatically assume, like, oh, we have to, you know, destroy the data center. Whatever happens, we have to make sure it doesn't get built because you could potentially be missing out on a huge amount of local revenue for the cost of the water use of like any other local industry in the area, as long as you're able to make sure that your politicians are keeping track of at least the things that I worry about the most, which are um like noise. Like noise pollution does seem to be a pr pretty big issue with data centers. So just making sure they're set pretty far back from homes. Air pollution might be an issue, although like data centers in Arizona seem to be powered a lot more by solar power, which is great. And then water use. Most places that I know of, I'm not really aware of a single municipality that's actually seen their water bills rise because of data centers yet. That might change, but it does seem like most utilities have thought about this a lot and understand just how to build this stuff out. And again, I don't want to speak too confidently to your specific area because I don't know like the policies around every single thing, but we definitely encourage people to just look at like how this compares to where this has been done well in the country.

SPEAKER_00 28:15

Let's talk about water more generally. There's there's general anxiety over whether or not there's going to be enough water, especially in places like Arizona when everything's getting hotter and we're kind of far down on the list of Colorado River recipients. What can you tell us about overall broader water availability issues?

SPEAKER_01 28:38

Yeah. My reading of the situation with the Colorado River is that so much of it is just downstream of specific agricultural decisions and regulations. And there are a lot of places in the country where it can be quite difficult to regulate the behavior of farmers because they're just so like politically popular in general that it can be the second that you suggest, like, oh, maybe farmers should pay a little bit more for the water they use, they'll like swoop in and be like, oh, do you not want any food? Like, where you're your one lifeline to this. And I think this is kind of a silly political equilibrium where there are a lot of ways that like farming could use more optimized like practices and like water could be just priced better to represent that. Um, thinking about Phoenix and Arizona more generally, with respect to you all, like I think Arizona is like a really amazing place. So largely like this large, you know, civilization constructed in the middle of the desert by like pulling in huge amounts of water from like hundreds of miles away. And, you know, I think that's both pretty cool, but also like it needs to come with some acknowledgement that this is already a very weird situation. And if you're looking around at this gigantic city that's just like grown out of the sand, and you look around and you're like, oh, but that data center, that's going way too far. That's exactly where we draw the line. I think that's a little bit suspicious, honestly. Like if you're thinking about a drought situation and thinking about water getting more expensive over time, like it's an important question to ask: do we just not want any additional industry in the area at all? And if we do want industry in Arizona that's new and different, what are the criteria for that? Like, how should we think about whether, like how different industries use water and what we should allow and what we should not allow? And I think my argument, which is a little bit counterintuitive, is that because data centers generate more tax revenue per unit of water used, in a lot of ways they're actually quite water efficient as industries compared to especially things like golf courses. Like if Arizona replaced all of the golf courses it has and all that water instead went to data centers, you'd probably get like 50 times as much tax revenue as you get from all golf courses combined. And I think that's kind of a sign that like data centers might not be the main baddie to target. But again, you know, if someone's looking around the situation in Arizona and thinking about just how crazy water could be in the future, I can also totally understand wanting to just completely hit the brakes until you all figure it out. Like there's a lot that I just don't understand about the local ecosystem. I think my main worry is just that like people are drawing these very arbitrary lines around data centers just because they're new and weird rather than they're like objectively the absolute worst thing that we do with water.

SPEAKER_00 31:01

I want to understand this tax revenue thing more. If I walk into a resort and I pay to stay at a resort, I'm paying specific taxes that go to the local economy. How does a data center with a bunch of chips in it and probably some employees create local city-specific revenue?

SPEAKER_01 31:20

Yeah. Um, so let's see, there's a lot to say about this. So basically, like the data center is where the main economic activity of a lot of companies is happening. Like everything that we do online, almost everything happens within a data center specifically. And now AI companies specifically are also extremely they're just deeply in need of these very large data centers for all these different reasons. You need especially large data centers to be able to train the newest models. Like we can get into training, that's a whole separate conversation. Um, but also just running them. And like these companies are completely blowing up, you know, like they're all like if you look at their revenue streams over time, it's balanced out by just how much they're spending on new data centers. And they're really desperate to build new data centers specifically. So it's mainly like there are different types of data centers too. They're like hyperscaler data centers that are mainly owned by these individual giant companies like Amazon or Meta and things like that. And they're also smaller co-location um data centers that um can host like individual activity from a bunch of different internet companies. But basically, you have these giant companies that really want to build and use a community's resources and use their land and things like that. And they come in and like most communities can say, like, hey, we want something for this. We want some exchange for all the power and water you're using, in addition to just the utility bills that you're like paying. And so like that's where the tax revenue comes from. And in terms of like at least physical surface area, like the average data center will generate something like 10 to 15 times as much tax revenue as, say, like a Walmart supercenter or something, which is like a comparable size. And so the main reason communities are able to like extract this money from these big AI companies is just that they're just so lucrative and they're very desperate for more data centers everywhere because there's just so much demand for their product. And even now, like there are definitely limits in how much AI companies can provide because like they have a limited amount of compute. Like there are times when you know I use Claude a lot specifically, and there are times when like Claude is just much more slow, or like it specifically has to limit how much I can do at a specific time because too many people are using it, which is basically another way of saying there's not enough data center capacity for it. Does that answer your question?

SPEAKER_00 33:27

Sort of. So like let's say there's a Google data center. That money is going to Google or Anthropic, and Anthropic is not in Gilbert, Arizona. So does the Gilbert, Arizona revenue depend on the negotiated deal that our city does with the specific data center built in the city?

SPEAKER_01 33:48

So the data center, like the data centers that I'm talking about, like hyperscalers specifically, are owned by these specific companies. So it would involve like a specific negotiation with like Google or Meta or Anthropic or something like that. So yeah, it's specifically with like the company as a whole, rather than as I understand it, the specific data center. I might be wrong about that. I would have to circle back actually. But yeah, this is a situation where like I start to scrape up against the edge of what I know. I know a lot of basic statistics about like, oh, you know, like this is how much data centers pay in taxes per unit in different areas, but the specific tax structures I'm a little bit less familiar with.

SPEAKER_00 34:21

Got it. Okay. I want to look into more, you know, the hyperlocal issue. Like what is what is what is this data center doing for Gilbert? Because I think people would be very interested to know. And they might be a whole lot more excited about a potential data center coming in. Because right now you've got people showing up at city council meetings all over the state saying, don't put a data center in.

SPEAKER_01 34:45

Yeah. Yeah. And, you know, I want to like be very sympathetic to those people because I think most of what the average person reads about these things are like these are these things that come in and destroy local communities. They sap your water. They're associated with these like far-off tech billionaires who don't care about you, and it's crazy. And I think the truth is actually quite far from that. I'm not entirely sure why this media narrative has popped up in the way that it has. Would be happy to share maybe after for the show notes or something. There are a bunch of like articles that I'm a big fan of that are still quite critical. You know, they're not saying data centers are always great, but they're just a lot of examples where, you know, like local town governments have just gotten a lot of like really great resources from them. Like again, Loudoun, near me, um, both has the most data centers of any county and is also the wealthiest or one of the wealthiest counties in the country. It's at least top five per capita. And the locals there get quite a bit from the data centers. Like they get thousands of dollars every year in like property tax abatements alone. Like a huge amount of the county's revenue comes from the data centers specifically. And if you start to think about the data centers as like, this is the main industry in the area, you know, like it's generating revenue. They're basically these huge computers that run and do cause some problems, especially with noise, but they're also kind of preferable to other industries that maybe use like a lot of chemicals or emit a lot. Like, I would probably rather have a data center next to me than a car factory or something. And like they can still generate a huge amount of revenue just by kind of passively running in the background. So like I do worry that like if the average person listening to this is just incredibly skeptical of what I'm saying, like I'm asking you, like, don't trust me. Like, I'm not trying to paint data centers as this perfect thing that is always great, but just look into instead of like the scary headlines, just try to find information about like how do these actually interact in like communities that are taxing them and governing them well. And like in most of them, it seems like people are actually quite excited, at least, about the benefits that they bring to the tax base specifically, especially in places that maybe couldn't handle a big influx of new people for a new industry that does require a lot of jobs, but could just use like a large computer running somewhere kind of far separated from everybody that is associated with this really large business that's very easy to tax.

SPEAKER_00 36:50

We don't have a ton of time, but I would like to ask you about something. We had a recent election for our local energy company, SRP, the Salt River Project. And there was this huge political campaign between turning point USA backed kind of fossil fuel board members versus the clean energy candidates. And the clean energy candidates won a majority of the seats. But I think a lot of us who know that are struggling to understand what is this fight between what what is happening between the clean energy folks and why are why would turning point back people to be on a board?

SPEAKER_01 37:31

Yeah. So is the question like what why are people still like so eager for like new fossil fuel stuff specifically? I just want to make sure I'm understanding it right.

SPEAKER_00 37:39

Well I I honestly don't really understand, I guess, the politics behind why there would be a war between clean energy and turning point, specifically.

SPEAKER_01 37:53

Okay. I mean, like, like I guess, you know, I I'm not conservative myself, so I can't speak to turning point too much. My my main read of this is that like the conservative criticism of like a lot of renewable energy stuff is that it does in a lot of places raise electricity prices. Like I think in the long term it's going to be good. I'm very excited about the green energy build-out, but I do need to be kind of honest with a lot of people talking about this, being like, yeah, like green renewable energy in a lot of places actually still isn't totally cost competitive with fossil fuels. And if I didn't believe in climate change at all, I would probably be much more excited about continuing to use fossil fuels because they are just objectively cheaper. If anything, like the thing that makes climate change so difficult is that fossil fuels are basically magic. Like you can put this tiny amount of liquid into your giant car and propel it for like 500 miles. And like, you know, obviously like the gas has been like refined and there's all this stuff that's happened to it, but it's still kind of this amazing miracle of nature that we have all this stuff on the ground that just contains so much energy. And so, like, the big challenge of renewable energy is building out an infrastructure and building out materials that can kind of store and transmit similar amounts of energy that don't also emit basically. And so my assumption here is that like Turning Point is like mainly excited about this because like they do want America to use a lot more energy specifically, because energy being cheap is just associated with a lot of good things and economic growth. And I think for me as someone who's more worried about the climate, I think that the trade-offs between growth that's as fast as possible and energy bills that are as cheap as possible, and just like investing a significant amount amount of money to make sure that like the planet doesn't warm to a dangerous degree. Like, I'd honestly rather like purely for building out the green energy grid, like I'd unfortunately rather Americans' energy bills be a little bit more expensive for a little while to fund that specifically. And I think a lot of this is where that's coming from. And obviously, like both parties have like money interests behind them. I think, you know, being honest, like I have to assume that there's some fossil fuel interest money behind like the push for like maximized fossil fuels. But does that answer your question? Am I getting to the other?

SPEAKER_00 39:54

Yeah, you did an excellent job explaining that. I really appreciate it. Last question. If you were the king of the world, yeah, and you wanted to do one to three things that would have the greatest positive impact on the world, what would they be?

SPEAKER_01 40:14

The greatest possible impact just on the world, period.

SPEAKER_00 40:17

It's such a broad question.

SPEAKER_01 40:19

Oh my god. Okay, yeah, let's see. Um, so I'm actually like, I have some very extreme beliefs about animal farming, actually, where I'm pretty worried that the main way that we treat and farm the animals that we consume is really disastrously bad. And so I think my first thing would be a global ban on specifically industrial animal agriculture with factory farming, specifically. Like if people wanted to raise their own chickens or their own cows and their, you know, pastures, like as long as they're treated well, that's fine. But being honest, that would all also really skyrocket the price of meat. But I think this is something that I personally worry about quite a bit. Um oh man, there are just so many options here. It's difficult. Probably much stronger governance of AI as it might exist in about five or 10 years or so. Um, I'm quite worried about the long-term implications of AI getting more and more intelligent and powerful. There are just a lot of downstream potential risks of that. And so probably a lot more like oversight of AI labs and just like kind of mutual agreements between countries to like govern this. That's kind of like very hand-wavy. God, and then probably a lot more global investment into um like renewable energy technology. Like I've been, you know, I'm I'm very much not like I'm very skeptical of a lot of what the government of China does specifically, but like I have to tip my hat that they are producing a huge amount of um like electric cars and solar panels and just flooding the markets with them and making them incredibly cheap. And I would like more people, even just like private companies, to be doing that. And I guess like if I'm the king of the world, we're already in kind of an authoritarian situation. So I might just direct more of that specifically. So those would be my top three.

SPEAKER_00 41:51

Andy, thank you so much for coming on this show and for sharing all of your knowledge and you know, taking the time to educate us on these things that are kind of new and um a little scary. So thank you.

SPEAKER_01 42:03

Yeah, this was a blast, Billy. Had a great time. Yeah, I appreciated the questions. This was this was all fantastic.

SPEAKER_00 42:07

Thank you. We'll talk soon. Bye. Yep, bye. Thanks for joining me on Law Labs. If today's episode gave you something to think about or something to act on, I'd love to hear from you. Don't forget to subscribe, leave a review, and share the show with someone building the future of law. Until next time, keep experimenting, keep evolving, and I'll see you back in the lab.