Musk’s xAI faces tougher road expanding Memphis area after EPA update

The Environmental Protection Agency closed a loophole this week that Elon Musk’s xAI had exploited to rapidly stand up its first data center in Memphis, Tennessee.

Musk’s artificial intelligence startup created a kind of off-grid power plant for its Colossus facility by using a cluster of gas-burning turbines. The company was able to avoid air pollution permitting by classifying the turbines, which were mounted on trailers, as “non-road engines.”

The EPA’s updated rule clarifies that those kinds of turbines can’t be designated as non-road engines and companies must also obtain Clean Air Act permits before installing them, particularly if their aggregate emissions will go above “major source thresholds” of pollution.

The Shelby County Health Department in Memphis previously allowed xAI to designate its turbines as non-road engines, and to start using them without any public comment and environmental impact review, as would have been required in a standard permitting process. 

Representatives from the county’s health department and xAI didn’t respond to requests for comment.

The move by the federal regulator could slow xAI’s expansion in the Memphis area as it builds out facilities, packed with Nvidia’s graphics processing units, to develop AI models and services in a booming generative AI market currently led by OpenAI and Google.

At the Memphis data center, which first opened in 2024, xAI conducts inference and training for its Grok models and apps, including a chatbot and image generator tightly integrated into the company’s social network X.

While xAI had previously told Memphis regulators that its turbines would include state-of-the-art pollution controls, known as selective catalytic reduction technology, its supplier, Solaris Energy Infrastructure told CNBC in June that it did not install such controls in xAI’s “temporary” turbines.

SEI, a Houston-based energy services provider, has seen its stock price soar in recent months, partly due to xAI’s expansion plans. SEI didn’t respond to a request for comment.

Pollution from the turbines has been a major source of local contention.

Last year, residents in the majority-Black community of Boxtown in South Memphis testified at public hearings about a rotten egg-like stench in the air, and the impact of worsening smog on their heart and lung health.

Research by scientists at the University of Tennessee in Knoxville also found that xAI’s turbine use added to air pollution woes around Memphis.

Environmental advocates, including the NAACP, said they would sue to stop xAI’s unpermitted use of the turbines. However, they didn’t file a complaint after the county allowed xAI to treat the turbines as temporary, non-road engines, and issued them permits.

Amanda Garcia, an attorney with the Southern Environment Law Center, which is representing the NAACP, said in an email that her firm will monitor xAI operations to ensure they aren’t violating terms of their permits, and are operating within the bounds of current EPA rules at forthcoming facilities in nearby Mississippi. 

XAI, which recently raised $20 billion from investors including Nvidia and Cisco, is currently being investigated in multiple jurisdictions after its Grok and X apps let users easily create and distribute deepfake violent and sexualized images of women and even children.

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