Elon Musk’s xAI hit a regulatory wall this week after the Environmental Protection Agency shut down a loophole that helped the company launch its first data center in Memphis, Tennessee.
The rule change targets how large data centers bring power on site fast. It cuts off a method that avoided air permits and public review.
The Memphis site, called Colossus, opened in 2024 and was built for speed. xAI set up its own off‑grid power using gas‑burning turbines placed on trailers. Those turbines were labeled as non‑road engines, which meant no standard air permits were needed.
Local health officials approved that approach, and the equipment went live without public comment or an environmental review.
EPA tightens Clean Air Act rules on mobile turbines
The EPA updated its rules this week and said trailer‑mounted turbines cannot be treated as non‑road engines. The agency said companies must now get Clean Air Act permits before installing them.
This applies when total emissions cross major pollution thresholds. That process requires notice, review, and limits that were skipped before.
The Shelby County Health Department had allowed xAI to use the turbines under a temporary label. That decision let the company avoid hearings and operate right away.
The EPA decision now blocks that path and could slow how xAI expands around Memphis as it adds buildings filled with Nvidia graphics processing units used for artificial intelligence work.
Inside the Memphis facility, xAI runs training and inference for its Grok systems. The work supports a chatbot and an image generator that plug directly into the social network X. The site is part of a crowded generative AI race that also includes OpenAI and Google, where power supply is a major bottleneck.
The company previously told county officials the turbines would use selective catalytic reduction systems to cut pollution. That did not happen. Solaris Energy Infrastructure, the supplier, told CNBC in June that those controls were not installed on the temporary turbines used by xAI.
Solaris Energy Infrastructure, often called SEI, has seen its stock price jump in recent months. The rise has been linked in part to xAI expansion plans and demand for fast power solutions tied to data centers.
Pollution from the turbines sparked backlash. Residents from Boxtown, a majority‑Black neighborhood in South Memphis, spoke at hearings last year. They described a rotten egg smell in the air and said smog made heart and lung problems worse. Researchers at the University of Tennessee in Knoxville reported that turbine use by xAI added to local air pollution.
Environmental groups warned of legal action. The NAACP said it would sue to stop unpermitted turbine use. That lawsuit did not move forward after the county allowed xAI to treat the turbines as temporary and issued permits.
The pressure comes as xAI raised $20 billion from investors that include Nvidia and Cisco. The company is also under investigation in multiple regions after its Grok and X apps allowed users to create and spread violent and sexualized deepfake images involving women and children.
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