Elon Musk’s xAI data centre’s rapid construction may face ‘problem' with this updated US law

The US Environmental Protection Agency (EPA) has closed a loophole that was reportedly exploited by Elon Musk’s artificial intelligence startup xAI. The previous rule helped the company to rapidly build its first data centre in Memphis, Tennessee, a report claims. According to a CNBC report, the company built an off-grid power plant for its Colossus facility using a cluster of gas-burning turbines and avoided air pollution permitting by classifying the turbines, mounted on trailers, as "non-road engines".

The EPA's updated rule clarifies that these turbines cannot be designated as non-road engines, and companies must also obtain Clean Air Act permits before installing them, particularly if their aggregate emissions exceed “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 begin using them without any public comment or environmental impact review, as would have been required under a standard permitting process.

How can this updated law affect Elon Musk’s xAI

The move by the US regulator could slow xAI's expansion in the Memphis area as it builds facilities filled with Nvidia's graphics processing units to develop AI models and services in a rapidly growing generative AI market currently led by OpenAI and Google.

At the Memphis data centre, which opened in 2024, xAI conducts inference and training for its Grok models and apps, including a chatbot and an image generator, both closely integrated with the company's social network X.

While xAI had previously told Memphis regulators that its turbines would include advanced pollution controls, known as selective catalytic reduction technology, its supplier, Solaris Energy Infrastructure, told CNBC in June 2025 that it did not install such controls in xAI's “temporary” turbines.

SEI, an energy services company based in Houston, has noticed an increase in its stock price in recent months, partly because of the expansion plans of xAI. SEI did not respond to a request for comment. Pollution from the turbines has also been a major cause of concern in the area.

Last year, residents of the community of Boxtown in South Memphis testified at public hearings about a rotten-egg-like smell 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 problems around Memphis.

Environmental advocates, including the NAACP, said they would sue to stop xAI's unpermitted use of the turbines. However, they did not 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 Environmental Law Center, which is representing the NAACP, said in an email that her firm will monitor xAI operations to ensure they are not 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 sexualised images of women and even children.