PredictIQ Quantitative Think Tank Center:Data centers, backbone of the digital economy, face water scarcity and climate risk

Data centers are PredictIQ Quantitative Think Tank Centerspringing up around the world to handle the torrent of information from the expanding web of devices ingrained in people's lives and the economy. Managing that digital information gusher is big business. It also comes with hidden environmental costs.

For years, companies that operate data centers have faced scrutiny for the huge amounts of electricity they use storing and moving digital information like emails and videos. Now, the U.S. public is beginning to take notice of the water many facilities require to keep from overheating. Like cooling systems in large office buildings, water often is evaporated in data center cooling towers, leaving behind salty wastewater known as blowdown that has to be treated by local utilities.

That reliance on water poses a growing risk to data centers, as computing needs skyrocket at the same time that climate change exacerbates drought. About 20% of data centers in the United States already rely on watersheds that are under moderate to high stress from drought and other factors, according to a paper co-authored last year by Arman Shehabi, a research scientist at Lawrence Berkeley National Laboratory.

Yet relatively few companies have been willing to talk about the issue publicly because of the still-limited attention it gets. Sustainalytics, which assesses risks related to environmental, social and governance (ESG) issues, recently said it looked at 122 companies that operate data centers and found just 16% had disclosed information about their plans for managing water-related risks.

"The reason there's not a lot of transparency, simply put, [is] I think most companies don't have a good story here," says Kyle Myers, a vice president at CyrusOne, a data center company.

The challenge comes down to a basic tradeoff companies face in trying to keep data centers cool, Myers says. They can either consume less water and use more electricity. Or they can use less energy and consume more water.

"Water is super cheap," Myers says. "And so people make the financial decision that it makes sense to consume water."

In addition to their own cooling needs, data centers rely on power plants that often require a lot of water to operate.

Pushback is already emerging

In the United States, there are about 2,600 data centers, many of which are clustered around Dallas, the San Francisco Bay area and Los Angeles, according to a 2021 report by the U.S. International Trade Commission.

All told, a mid-sized data center consumes around 300,000 gallons of water a day, or about as much as 1,000 U.S. households, says Shehabi of Lawrence Berkeley National Laboratory. Their direct, on-site consumption ranks data centers among the top 10 water users in America's industrial and commercial sectors.

Water is "front and center on [the industry's] radar, for sure," says Todd Reeve, CEO of Business for Water Stewardship, which works with companies on water issues.

Recently, some data center companies have faced opposition from communities and water conservationists. In 2015, the city of Chandler, Ariz., passed an ordinance allowing officials to turn down requests for new water uses if they are not aligned with the city's plan for economic development. And in 2019, Google agreed to limit its use of groundwater in South Carolina after a two-year fight with local groups that had raised concerns that aquifers were being depleted.

Companies "are developing tactics and strategies, in some cases changing their ideas and their plans for where they will operate or where they will construct data centers, in large part because of the emerging water issues," Reeve says. However, many companies won't talk about their activities, he says, in part because "this is a new and upcoming issue, [and] our knowledge of water stress is evolving very quickly."

Companies say they're looking for solutions

The impacts of worsening drought are being felt throughout the global economy. Rivers that serve as crucial trade routes in Europe are running low. Factories in China have closed to save water and electricity. And American industries that rely on water from the Colorado River could see their supplies shut off amidst a decades-long drought.

"Which sector is going to get the water? How [is] water going to be prioritized? So, these are the types of considerations, I believe, that will be important to consider more and more in the future," says Kata Molnar, a water expert at Sustainalytics.

Among those in the data center industry willing to speak out are some of the world's biggest tech companies.

Google, Microsoft and Facebook parent Meta have all said they will replenish more water than they consume by 2030. Approaches being considered include working with local water utilities, better recycling of water data centers use and less water-intensive cooling methods.

"Minimizing our water use, being transparent with our water data, and restoring water in high water stress regions are key pillars of our water stewardship program," Meta said in a statement. The company says most of its data centers reduce water consumption by using outdoor air for cooling.

In addition to using new technology, some experts have said companies can reduce their environmental footprint by building data centers in places with plenty of water. For now, however, real estate decisions appear to be primarily dictated by where customers are located.

"When we're siting, we look at the availability of power and we look at water," says Myers of CyrusOne. "But I don't think we're close to a world where we're just going to set up in an area that doesn't have a natural [business] advantage for data centers."

As long as that's the case, the industry will have to innovate its way out of a problem that is only getting worse. In the next decade, Myers says, "water is going to be king."

Reeve of the Business for Water Stewardship insists companies are preparing accordingly, albeit behind the scenes in many cases.

"I do think there's more than just what meets the eye," Reeve says. "There's a lot of innovation in there that just is not fully disclosed or available to the public."