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

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

Musk’s artificial intelligence startup has created a sort of off-grid power plant for its Colossus facility using a cluster of gas turbines. The company was able to avoid air pollution if possible by classifying trailer-mounted turbines as “non-road engines.”

The EPA’s updated rule clarifies that these types of turbines cannot be designated as nonroad engines and that companies must also obtain Clean Air Act permits before installing them, particularly if their overall emissions exceed “major source thresholds” of pollution.

The Shelby County Health Department in Memphis previously allowed xAI to designate its turbines as nonroad engines and begin using them without any public comment or environmental impact study, as would have been required in a standard permitting process.

Representatives for the county health department and xAI did not respond to requests for comment.

The federal regulator’s decision could slow xAI’s expansion in the Memphis area as it builds facilities filled with from Nvidia 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 opened in 2024, xAI performs inference and training for its Grok models and applications, including a chatbot and image generator tightly integrated with the company’s X social network.

While xAI 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 had not installed such controls in xAI’s “temporary” turbines.

SEI, a Houston-based energy services provider, has seen its stock price skyrocket in recent months, in part because of xAI’s expansion plans. SEI did not respond to a request for comment.

Pollution caused by turbines is a major source of local conflict.

Last year, residents of the predominantly black community of Boxtown in South Memphis testified at public hearings about a rotten egg smell in the air and the impact of worsening smog on their heart and lung health.

Research by scientists at the University of Tennessee at Knoxville also found that the use of xAI’s turbines worsened air pollution problems around Memphis.

Environmental advocates, including the NAACP, have said they will sue to stop xAI’s unauthorized use of the turbines. However, they did not file a complaint after the county authorized 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 represents the NAACP, said in an email that her firm will monitor xAI’s operations to ensure they are not violating the terms of their permits and that they are operating within current EPA rules at upcoming facilities in neighboring Mississippi.

XAI, which recently raised $20 billion from investors including Nvidia and Ciscois currently under investigation in multiple jurisdictions after its Grok and X apps allowed users to easily create and distribute fake, violent and sexualized images of women and even children.

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